With first quarter reporting nearing an end, public companies are now grappling with how to adapt their wider investor relations efforts to a new reality of prolonged social distancing, widespread working from home, and unprecedented capital markets volatility. While extraordinary times may call for extraordinary measures, it’s also more important than ever for issuers to provide consistency in the form of transparency and proactive investor engagement. The current situation requires that companies reassess their deeply entrenched post-earnings IR practices that too often amount to replicating the prior year: reporting earnings, participating in a traditional non-deal roadshow, and then responding to inbound shareholder inquiries until the next earnings cycle begins. Opportunities exist for those issuers willing and able to effectively meet the unique challenges at hand.
Huge swings in broad market indices, a daily rollercoaster for individual stocks, and a seemingly endless series of unforeseen exogenous developments have resulted in an environment lacking many of the guardrails that would normally help investors and analysts navigate the market. Modeling assumptions and consensus valuation multiples for a given industry have in many cases fallen by the wayside, forcing investors to essentially start from scratch in determining how much a company should reasonably be worth. Similarly, following the significant disruption from MiFID II regulations that pre-dated the current crisis, standard corporate access and equity research functions face heightened pressure to focus their attention on the largest and most liquid companies, presenting a further challenge for the relatively smaller market capitalization companies already battling for investor mindshare amid a torrent of market-moving developments. Particularly as many investors continue to work from home and either limit or entirely avoid in-person interactions, the onus falls on issuers to seize back investor mindshare and effectively convey the company’s value proposition to the investment community.
In addition to adapting quarterly reporting practices, what should a public company be doing to update post-earnings investor outreach for the COVID-19 era? The IGB Group provides the following 5-step plan:
Step 1: Critically re-assess messaging in the current environment
Consistency is important, and investors take comfort when a company can reiterate quarter after quarter and year after year a consistent set of key strengths, competitive differentiators, and strategic initiatives driving value creation for shareholders. At the same time, when the facts on the ground change as radically as is currently happening throughout the global economy, management teams need to critically re-assess their messaging to ensure that it remains both relevant and compelling in the world as it now is. Whether any change of messaging will be temporary or permanent will come down to the company-specific implications and duration of the crisis, but a pitch that relies too heavily on outdated, pre-crisis assumptions is unlikely to be a successful one.
In re-assessing investor messaging, management teams should be asking themselves questions such as the following:
- Does the current investor messaging convey a story that would be compelling and differentiated to an investor hearing it for the first time?
- Are there aspects of balance sheet strength, forward visibility, or business model sustainability that can be given greater emphasis to match investors’ heightened interest in all aspects of financial resilience?
- How should growth messaging and quantitative or qualitative profitability targets be amended or eliminated from investor messaging for the time being?
- Do all assertions and expectations being provided still have a firm grounding in reality, with credible, supportive, third-party data that would be compelling to an increasingly skeptical investor audience?
- Is the company taking certain defensive or offensive measures that can be highlighted as strengths or differentiators in a period of increased uncertainty and risk?
- Are there initiatives being undertaken, aspects of the business, or components of the ESG strategy that can be highlighted to reflect the company’s leadership through challenging times and standing as a good corporate citizen?
Step 2: Conduct regular update and introductory calls with shareholders and covering analysts
Regular post-earnings update calls with top shareholders and covering analysts are a good practice in any circumstances, but their importance is never greater than in times of heightened uncertainty. These calls demonstrate management’s commitment to engagement with the investment community, convey a sense of continuity and normalcy in turbulent times, and provide an opportunity to identify and answer outstanding investor concerns and questions in a timely manner. Similarly, as new investors take a position or demonstrate an interest in the company as a potential investment, proactive outreach to active managers clearly demonstrates the company’s commitment to open and transparent engagement with its investors.
Following each interaction, companies should track and utilize the feedback that they have received, further adjusting investor messaging and incorporating additional datapoints as necessary to most effectively highlight strengths and counter concerns.
Step 3: Target prospective new investors
Amid extreme stock market volatility and a not-insignificant number of fund liquidations and reorganizations, prior assumptions about the “go-to” institutional investors for a given sector or security profile will need to be re-assessed to reflect the new status quo.
The delays inherent in the quarterly filing of institutional shareholdings mean that the data itself can be of limited use by the time it is released, particularly during periods of market volatility. Additionally, given the wild valuation swings across the market, the boundaries between value, GARP, growth, contrarian and other traditional investment styles become more permeable and open to interpretation. Meanwhile, non-shareholders who have met with the company in the past should be re-engaged to determine whether substantially altered market circumstances have made the prospect of an investment more appealing.
In this environment, a close quantitative analysis of portfolio management and buying trends is only one important component of the targeting process. When paired with deep institutional insight, close relationships throughout the buy side and sell side, and direct outreach to key decisionmakers, this proactive approach has the potential to yield a wider-than-usual range of interested investors for issuers capable of presenting a compelling story in a targeted manner. This integrated targeting and outreach process, guided solely by the investor profile that best suits the company’s own capital markets goals, should serve as the foundation of investor marketing efforts.
Step 4: Conduct virtual non-deal roadshows
As social distancing measures and travel restrictions rule out traditional in-person roadshows, the widespread transition to telework has rapidly normalized conference and video calls as readily available, highly efficient alternatives in even the most formal settings. By removing the need for complex travel logistics, virtual roadshows make it possible to have engaging 1×1 or group interactions with a larger number of targeted institutional investors irrespective of geography, while maintaining a high degree of flexibility in management’s schedule.
A professionally executed, company-led virtual roadshow can recreate essentially all of the positive aspects of a traditional bank-sponsored, in-person non-deal roadshow, including:
- Extensive investor briefing materials, including historical shareholding trends, sector and fundamental peer ownership, and the investor’s specific areas of interest and inquiry for the meeting
- Multiple 1×1 and group meetings with high-quality, targeted investors who have been briefed on the company in advance of the meeting
- A well-structured schedule that maximizes the value of management’s time
- Circulation of physical or digital presentation decks ahead of the meeting
- Post-event feedback capturing the investors’ unvarnished opinions of management, the company, and its investment proposition; any outstanding questions or concerns; and anticipated buying activity or appropriateness for subsequent offerings
Recent advancements in technology have made videoconferencing both widely available and inexpensive (or free), enabling a face-to-face interaction regardless of distance. These video communications platforms should be utilized instead of an audio-only call in cases where all parties are comfortable with the technology and interested in utilizing it, but should be viewed as an option rather than a necessity. When utilizing these platforms, appropriate measures must be taken to ensure effective use of the medium and strict control of access to the video conference.
Step 5: Plan a virtual investor day
In addition to virtual roadshows and ongoing investor engagement, the value of a large-scale investor day can be maintained and, in some cases, even expanded in a virtual context until such time as large-scale, in-person events become feasible again. While technology has yet to fully replicate the casual pre- and post-event mingling and familiarity of traditional, in-person investor days, a virtual event holds a number of distinct advantages, including:
- More fluid integration of audio-visual components into a presentation, as all participants are receiving a single webcast feed or video stream
- Increased practicality and affordability of incorporating a larger group of management
- The ability to incorporate interactive features such as real-time polls and question submission that can be awkward to integrate into hybrid virtual/in-person events
- Reduced time and monetary cost for management to participate in the event, as well as for the investors and analysts who attend
Whether in-person or virtual, a large-scale investor day provides opportunities to address the unique communications and IR challenges of an unprecedented situation beyond what is possible in a standard investor meeting, including:
- Presenting the extended team responsible for a company’s crisis response efforts beyond the C-Suite, demonstrating competence and bench strength while conveying a degree of control over the situation
- Allotting an extended period of time to those aspects of the business and its prospects that persist despite the current situation, emphasizing business resilience and strategic continuity
- Demonstrating in detail the strength of the company’s balance sheet and liquidity cushion to sustain even extended downturn scenarios
- Incorporating third-party experts to provide additional insight into adjacent issues that support the hosting company’s strategy and investment thesis
- Providing a convenient opportunity for the gathered high-priority shareholders and potential investor targets to receive more detailed and personalized 1×1 or small group virtual follow-up
- Drawing the attention of relevant financial and trade media to amplify announcements and draw further attention to company messaging
To speak with The IGB Group about navigating the unique Investor Relations and Strategic Communications challenges of being a public company during COVID-19, call Leon Berman at 212-477-8438 or email at lberman@igbir.com
