This week we bring you our key takeaways from part two of the IR Magazine Small Cap Forum held last week, as well as the key points from another recent webinar on earnings call preparation.
PRESENTATION: Responding to the changing investor base during Covid-19, and attracting the right investors for your company
There has been a shift from active to passive during Covid (steady rise in passive since 2009) and a dramatic shift from small to large and mega cap. (Apple is now bigger than the whole of the Russel 2000 combined!). What to do? – know where your company fits in the indices that the ETFs track e.g. knowing that if you drop below x then you will drop off the index. You also need to understand the ESG side for passive ESG trackers and what is most important for quant funds.
Target underinvested current investors in your stock – they know the story etc. so are an easy target and you will already have positive relationships with them. You could use an approach such as ‘let me talk to you while the stock is cheap so you can make a profit’.
PANEL: Generate visibility: targeting covering analysts & how to mitigate impact of the small-cap research squeeze
Good quality coverage is important – quality over quantity.
Be persistent, eventually an analyst may cover you.
Analysts have to be fair and objective. If you disagree with an analyst, then prove them wrong. The more that analysts with a sell rating hear about your story, the more likely they are to change their mind – so keep working with them. An analyst with a sell rating who changes to a buy rating is a powerful story.
To increase coverage:
- Look at peers – find out which analysts are covering them but not you and reach out. Leverage existing sell side relationships from your prior life – some may start to cover you, others may be able to work with you on other things e.g. events.
- You CAN ask the buy side for assistance. Buy side could approach an analyst who covers a peer. Even if they don’t take you on straight away, as things change down the line they might. Leverage relationships with corporate bankers – know which corporate bankers are talking to your CEO/CFO – if you are going to do a deal with them then try to get them to cover you.
- Look at niche banks that deal with smaller/mid-caps for coverage.
- Think about what you can offer the analyst – could your company be an indicator for the market e.g. as the smallest or largest in a particular sector or subsector.
- Make sure your targeting of analysts is realistic.
- Target relevant international coverage.
PANEL: Responding to increasing ESG expectations with a small cap budget
Small cap companies are often afraid of ESG because they see it as an IR luxury rather than a necessity in a low-budget context, when their perspective should be the opposite: investing in the implementation of ESG strategies and reporting will benefit their growth and financials long-term.
- Being really “out there” about ESG within your IR strategy can attract attention from investors who wouldn’t otherwise notice your company, as it is the topic de jour.
- You are investing in risk mitigation and planning.
- ESG has connotations of transparency and trustworthiness, both are needed for effective IR.
“Purpose washing”, like green washing, is saying you have a certain purpose in order to look good, rather than because you truly believe that to be what drives your business. ESG is very new in Mexico, and many do not understand why it matters other than to attract investors. Senior Management and the board need to make sure that the proper tone is set from the top to embed ESG into company culture.
As ESG and ESG reporting are relatively new in Mexico, small caps often find themselves lost as to how they should start. It is important to fully understand all of the standards that exist and the types of reports that they apply to. Once that part is understood, they need to choose which standard fits their mission and audience best to ensure maximum efficiency in their communication of ESG efforts.
Live Q&A with portfolio managers. What do investors want from small caps at this time?
Communicate your purpose!
What do investors want to see from small caps in emerging markets?
- Apply the standards from developed markets.
- Explain the local risks – e.g. political risks.
- Find and explain a different layer of the story.
What do investors want to see now vs in 6-12 months’ time?
- Now – resilience, balance sheet.
- Going forward, there’s the opportunity to take advantage of others’ weaknesses. This portfolio manager expects his companies to make the best acquisitions of their lives in the next few years. He commented that this will be an increasingly interesting time. Small caps are keeping the economy growing and he thinks that the opportunity for small quoted companies over next 10-12 years is huge.
IR MAGAZINE WEBINAR: EARNINGS CALL PREP DURING THE COVID-19 ERA
Consider the use of a platform like Sentieo to help with earnings call preparation, with the ability to conduct peer analysis and specific searches within the tool.
Approach to peer analysis:
- Identify the peer set – direct competitors, sector and aspirational peers.
- Understand what that peer set is talking about and how they are talking about those topics.
- Analyze how that information is being perceived.
Looking at what your peers have been doing can help you to decide whether that topic is something you want to cover in the opening remarks or the Q&A.
Preparation beyond peers – analyst notes and topics:
- See key terms that are trending up or down.
Who to involve in the calls:
- CEO and CFO are the two key executives.
- You could bring other executives into the Q&A if they are decision makers who drive strategy and are comfortable participating in the earnings process going forward. For example, you may want to bring in the COO or someone who leads a particular segment e.g. the Chief Scientific Officer in a healthcare company as they can add more detail in response to certain questions.
How to extend the life cycle of the earnings message:
- Collateral – presentations and infographics
- Use an earnings call presentation and be able to repurpose these materials e.g. into corporate presentations or fact sheets.
- Leverage this collateral in meetings and conferences.
- Engage with the media to broaden the regions and messages covered, but also to reinforce the messages and key themes addressed on the call.