Italy has an enormous untapped pool of capital. Global investors ignore it at their own expense,’ asserts Malcolm Duncan of financial marketing and communications agency, MGD & Associates.
The fact is, notions of equity and share ownership are alien to Italian culture. There is plenty of evidence of this: the first institutional investors were only established ten years ago, for example, and open ended funds have just recently been introduced. Traditionally, Italian investors have favoured lower risk investments. Bonds have been king for many a year.
According to the Italian Stock Exchange Council, though, all that is changing. There are now over 50 investment institutions in Milan, and the first privately-managed pension funds are due to be set up within the year. The stock exchange is currently offering companies incentives to list in an effort to kick an equity culture into action. Inducements include freedom from listing fees in the first two years and 16 per cent off corporate tax for all those listing between 1995 and 1997.
The bourse has enjoyed some success in its campaign. ‘Ten companies have already listed this year,’ says Rita Borgo, manager of communications at the stock exchange. ‘That may not seem a lot compared to, say, London, but if you compare it to Italian figures from 1992 or 1993, when there were only one or two companies listing in a whole year, things are looking up.’
Italy still has a long way to go, however, to convince its population that publicly-owned companies are a good thing, according to MGD’s Duncan. ‘In a recent flotation, 50-60 per cent of an Italian company was sold off,’ he reports. ‘The market reacted appallingly and the share price plummeted – primarily because it thought the company must be in serious financial difficulty to be selling its stock.’
Not surprisingly, then, global companies do not often view Italy as a good source of capital. Yet it is second only to Germany in continental Europe in terms of its savings pool. One reason that a forward-looking Anglo-Saxon company might be able to reap benefits from the Italian market is a more savvy approach to investor relations.
Most Italian companies have not yet recognised the significance of communicating with shareholders, however. ‘The day after a meeting of one company with a group of financial analysts, there was a negative article in one of the country’s leading financial papers,’ recalls Duncan. ‘Rather than think about addressing the problems brought to light by the article, the company angrily resolved only to hold meetings with analysts twice a year.’
Frederico Pupini, a fund manager at Primegest, agrees. ‘Many Italian companies are complacent. Traditionally, they have not needed to compete in the market so they don’t believe they have to answer to anyone,’ he says. ‘With the opening up of Europe they are in for a shock. Once foreign banks and companies who do know how to communicate come here, Italian companies are not going to stand a chance.’
Indeed, institutions in Milan and across the country are just as demanding as in other leading financial centres. ‘We want to be sure that a company has a well-planned strategy,’ says Pupini. ‘We want to know about the characteristics of the market they are working in, about the products, the process by which they intend to increase profits and about their financial structure. Some Italian companies only tell you about the balance sheet; every fund manager knows how to read a balance sheet themselves.’
But most foreign companies do not use their more highly developed communication strategies to woo Italian investors. Riccardo Taverna of MGD & Associates says that even foreign companies listed in Milan often do not bother doing roadshow presentations in the city. ‘They send out their annual reports only in English and the Italian market has to like it or lump it.’
‘We have to get any information we need on foreign companies from brokers,’ bemoans Fransesco Coppola of fund managers Fondigest. ‘And although the research is readily available and extremely good, it’s not the same as having direct contact with the companies themselves.’
Pupini at Prime has similar complaints about the scarcity of foreign companies presenting in Milan. ‘We go to any meetings organised by companies who come to Milan and, if brokers arrange it, we will go to visit companies throughout Europe,’ he says. ‘I prefer small meetings. If a large number of people are attending you can’t begin to ask all the questions you want to.’ And, says Pupini, displaying the profound Italian respect for food, lunch meetings are a very bad idea. ‘I mean who can concentrate on what they are saying when they are eating?’
Another problem with approaching the Italian market has been a lack of targeting. In 1995 a leading European stock exchange decided to introduce itself to the Italian market and hosted a presentation in Milan. Over 150 people attended the meeting. ‘But when I looked around the room at who was actually there,’ recalls Duncan, ‘I realised that there was barely a handful of people for whom the meeting was relevant. Everyone ate their goodies, drank their drinks and did not invest in their market.’ The failure of the presentation has perhaps dissuaded other foreign stock exchanges or companies from coming to Milan, says Duncan. He learnt about the difficulties of bringing foreign companies to Italy the hard way: he represented Nasdaq during 1989-1993 and failed to get any Nasdaq companies to come to the city on their roadshows.
But things are looking up. And the stock exchange can take a lot of the credit for the new optimism. ‘As a market we have suffered for years from what has been regarded abroad as political instability,’ says Borgo. ‘It is probably more like Italian stability – but what counts is that it has been perceived abroad as instability. Our role now is to show foreign investors and companies what Italy does have to offer.’
Part of the stock exchange’s strategy is to become a central reference point for listed companies, fund managers and intermediaries. It hosts presentations, conferences, results meetings and one-on-ones between companies and analysts. It also organises seminars on investor relations for companies and the financial press.
A very close knit community of investor relations agencies has also grown up in Milan over recent years. ‘Everyone knows everyone else,’ says Frederico Banfi of Citicom. ‘If you don’t know the right people it probably would be difficult to set up a decent event here. But we can put a foreign company in touch with all the right fund managers, stockbrokers and financial journalists.’
None of the agencies can survive on investor relations work alone, though. Even the biggest players like Barabino & Associates or Hill & Knowlton offer a variety of communication services of which investor relations only makes up a very small part. ‘We are ready to receive foreign companies,’ says MGD’s Taverna. ‘We’ve dedicated most of the last few years to studying financial analysts: how they want to receive financial information from companies, what kind of information they need to do the best communications and hence, how to organise the most targeted events.’
The hosting of this year’s International Investor Relations Conference by the Italian investor relations society (AIR) in Septem-ber comes as something of a watershed for the Milanese financial community. ‘We hope that the conference will introduce more people to the concept of investor relations and encourage them to take it seriously,’ says Stefano Marini, vice chairman of AIR and IR officer at INA. ‘We hope, too, that foreign companies will take a more careful look at the Italian market and realise its, as yet, untapped potential.’
