The practice of Investor Relations has moved beyond regulatory filings and stock promotion. Issuers must both meet a standard of trust and help the company reduce its longer-term cost of capital. Today’s demands for timely, thorough disclosure, give every company the building blocks to combine credibility and information to achieve an optimal valuation. We outline five investor relations goals:
- Increase the number of investment dealer research analysts following the company.
- Seek improved investor credibility, through public filings, meetings, webcasts, conference calls and research reports.
- Gain broad retail investor distribution and sponsorship.
- Gain institutional investor commitment, especially among long-term investors.
- Realize more equitable security prices.
The first goal, increasing the number of investment dealer research analysts, is the most important goal. If an analyst covers your company statistics suggest the recommendation will most likely be a buy. Through their firm’s sales force, no other audience can reach the same number of current or future investors.
Your company’s credibility is likewise enhanced by the second, third and fourth opinions of additional analysts. More analysts reinforce the message among all investors, large or small. On the institutional side, several analysts could be pitching the same fund on the merits of your company.
The companies that are best understood tend to be the ones with the highest relative valuations and the most loyal investors. One should not demand analysts dig for information. Corporations should strive to be forthcoming with timely, useful disclosure.
The analysts and critics of a company must be treated with respect. Companies that are thin-skinned and litigious when dealing with negative opinions only promote short-sellers’ views among a broader audience. Furthermore, it undermines the credibility of optimistic analysts, reducing them to cheerleaders, defending management.
It is important to understand that the way to a higher stock price is to persuade current holders not to sell. Finding new buyers may only flush out sellers and generate higher trading volumes. However, loyal sponsorship and broad distribution of ownership mitigates potential selling pressure. Retail investors tend to be supportive of management’s long-term initiatives and are more likely to add to holdings on price weakness. They buy on the offer side of the market and, most days, will set the closing price of the shares.
The importance of gaining institutional investors is not in improving volume or pushing the share price, but in securing future financings. Private placements are the most popular way for small-cap companies to raise equity. Issuers appreciate the low upfront costs and short timeline. Purchasers like the discount price and, often, the warrant kicker. The downside is that the only buyers tend to be those who already understand the enterprise or those enticed by the discount. There is not enough time or information to persuade a wider range of shareholders.
The benefit of a large, diverse institutional investor base will translate into a smaller discount on a private placement. However, mutual fund turnover is roughly 100 percent per year. One would expect those funds that participate extensively in treasury offerings have even higher turnover ratios, reinforcing the need for a retail audience to absorb selling pressure.
The fifth and final goal is to achieve a strong share price. It provides the currency to pursue acquisitions and investments. It is also the best defense against an opportunistic hostile offer.
Jamie Sellers, CFA
President, Rapport Investor Relations
Rapport was launched in 1974, the first independent firm of investor relations advisors and capital formation strategists in North America. In the ensuing thirty-four years we have been retained by 564 companies and trusts.
By way of Rapport information meetings and COPIC conferences, issuers have had an opportunity to tell their story to accredited members of the entire investment community, including: research analysts and coordinators, institutional investors and stockbrokers. We also provide advice on the content of presentations and prepare follow-up response reports. The success and visibility of our clients has been remarkable.
Since 2005 ITB Solutions has provided listings development services to stock Exchanges in Canada such as the Canadian Securities Exchange. ITB Solutions currently provides New Listing Services to the NEO Exchange. We assist companies with the listing application and managing the process to become publicly tradable in Canada, as well as offering advice on how to make the most of your public listing. You can reach Jeffrey Stanger at 647-500-0492 or by email at [email protected]