This week we interviewed some of the most prominent Institutional Investor rated analysts covering stocks in the LatAm chemical sector. Some of the topics covered in these interviews were the relevant metrics for the sector, the strengths, and weaknesses of communication strategies in the sector, among other issues.
Most relevant metrics for the Petrochemical Sector
Most of the analysts responded that the key operating metrics for the petrochemical sector are pricing and supply/demand dynamics. Volumes, price spread, and capacities are also important indicators for the sector. Pricing was the overall most important metric and keeping a close eye on supply and demand dynamics was mentioned multiple times as an important indicator to look out for. Regarding financial metrics, all analysts interviewed look at the profit and loss statement, especially the free cash flow of a company.
What do analysts want from the Earnings Report/Call?
For the earnings release, analysts focus on the cash flows and FCF, as well as the price spread and margins. They look at how these metrics evolved over the quarter and what the outlook is.
For the earnings call, analysts said they want to hear not just about the results of the quarter, but rather what guidance and outlook the company can give. Analysts are more concerned with the long-term goals and plans of a company, rather than looking back at historical actions.
As for the CEO’s message, analysts want to hear about the capital allocation of the company and the guidance a company can give for future quarters. The CEO message should include a realistic outlook for the company and macroenvironment, as sometimes analysts feel that the CEO message can focus on only the positive aspects of how the business is doing, and not any negative aspects. It’s important to give a realistic view of how the sector is doing and the specific actions a company is taking to tackle issues and leverage the unique advantages they have compared to competitors.
How can companies stand out and where can they improve?
The main company strengths that analysts value are vertical integration of a company, clear competitive advantages to competitors and clear communication. One analyst mentioned that competitive advantages and how the company is doing is important, however, clear and consistent communication with the quarterly earnings call and between quarters is key for keeping analysts up to date. Analysts also look for the fundamentals and a strong balance sheet but want to see companies go a step beyond the results and see what a company is doing to prepare for the future.
The main weaknesses analysts are concerned with are inconsistent or changing messages from management and corporate governance. Analysts want to not only have clear and consistent communication from companies, but want there to be a consistent message over time.
Improving Communications Strategy
All analysts interviewed mentioned communication between the Investor Relations team and management as one of the most important ways a company can stand out against its competitors. Consistency, clarity, and honesty are what analysts look for in a company.
Analysts stated they would like to hear from the Investor Relations teams at least quarterly and from the management team at least once a year, ideally twice. It’s important to note that this is the minimum that analysts would like to hear from the IR team and top management, and regular communication, especially if something happens in the industry or within the company. Some analysts haven’t lived through the inflationary rates in the market or a recession which could likely happen, so some extra handholding during these times builds trust between analysts and the company. Analysts would like to see a company attend non-deal roadshows at least once a year, and all analysts commented that companies should attend as many conferences as they are able to.
Miranda IR’s Take on the Results
So, what can an IR team do with this information?
- Include the most relevant metrics in the highlights section at the beginning of the earnings release.
- Provide an unbiased perspective regarding the results and include realistic guidance. Don’t try to paint an overly positive image of the results.
- Analysts want outlook and expectations a company has of the sector going forward.
- We recommend all companies in this sector to regularly update on important sector details and metrics, so analysts can better understand the company within the industry.
- The CEO’s message should include the industry’s outlook, and how it affects or benefits your company.
- Keep a clear and consistent message throughout quarters. Make sure your strategy aligns with the strategies from the past.
- As an IRO, you should aim to be as available as possible.
- Communicate with analysts regularly and schedule calls to free up time for investors to ask questions during the quarterly Q&A session.
As always, in Miranda IR we would be more than happy to help you adapt your IR materials and communication strategy to better accommodate to the market’s needs.
Contacts at Miranda Partners