When it comes to showing off non-domestic operations, piquing the interest of your average analyst can be like trying to amuse Caligula.
Some American investor relations officers, in particular, are staggered by analysts’ lack of interest in the bigger picture and, faced with such indifference, it’s little wonder that their caricature isn’t all that flattering. Analysts are stereotyped as a slightly strange bunch who’ll phone round IR departments and download quarterly figures until the cows come home but who won’t be dragged along to an exotically-located free lunch for love nor money – or, at least, not for love.
A stereotype maybe. But, predictably, there does seem to be a striking kernel of truth lurking in the analytical core.
‘It’s like trying to train a dog,’ laments Rick Anguilla, head of investor relations at sports merchandise giant Nike. He routinely struggles to make analysts look in more detail at Nike’s overseas operations and doesn’t mind saying so. ‘I’d say, as an investor relations officer, it’s probably my number one complaint.’
But how can this be? When a company’s non-domestic operations are as extensive and global as Nike’s surely a disinclination to look at the bigger picture defies sense? ‘It is this foreign business that’s going to be the driver for our growth over the next five to ten years,’ agrees Anguilla, ‘but there are many analysts who don’t bother looking.’
Overreacting
But hang on a minute, is this really such a global investor relations nightmare? Michael Bamforth, senior partner at Brussels-based Kuhn Partners, certainly doesn’t think so. ‘I’ve been doing this business for 20 years,’ he says, ‘and I’d have to say I’ve never encountered it as a problem. If anything, there may even be a disproportionate interest in non-domestic operations. Kodak’s a good example. They’re very strong in Germany and they probably get more interest there than in their domestic operations.’
Similarly, Jane Moore of Citigate Dewe Rogerson in London doesn’t seem to encounter myopic herds of agoraphobic analysts. She deals with several Scandinavian companies and has found the region’s analysts thorough and only too happy to get out and about. ‘About once a year we hold capital market days – they’re essentially glorified site visits and management briefings – and they always get really good turn-outs. Swedish analysts have no problem travelling to a meeting in, say, Prague. Okay, their ongoing research isn’t very proactive but, in my experience, they will travel. And analysts are more than happy to go over to the US. Gambro, for example, regularly takes parties over there.’
So why the mud-slinging? Moore gets to the rub of the problem: ‘Getting analysts from the US to appreciate your non-domestic operations is a very, very big problem. Even if your European business accounts for 60-70 percent of your company, it’s very difficult to make them see the bigger picture.’
Easy life
So it seems that US analysts may be the guilty party here. They’ve certainly touched a nerve with Moore. ‘The research there is so much more parochial,’ she bemoans. ‘They’re not very proactive. Look at Swedish Match, for example. A lot of its peers are in the US but, even with intense lobbying on its part, analysts there still just look at it as Europe. It’s so difficult to get through to them.’
So it’s a hopeless plight for non-US companies? ‘Basically,’ says Moore, ‘if you have no American depositary receipt program, you’ve got no chance. If you do have an ADR program, you’re better off but, to be honest, you still haven’t really got much of a chance.’
Put this to a US analyst, though, and stand back. ‘I’m always asking to go to Europe,’ refutes Walter Winnitzki, a technology analyst at Hambrecht & Quist in San Francisco. ‘I make it my business to meet as many people in the distribution community as possible. Because around 25 percent of the PC industry is in Europe, it’s critical that I do go to Europe. But if you’re asking whether I get companies going out of their way to organize field trips for analysts, then I’m afraid that the answer’s no. They really don’t encourage you.’
To be fair, there are some investor relations officers who won’t draw their pistols on this issue. Analyst-bashing might well be in vogue when your company is looking good but it seems that a spate of bad publicity can soften negative corporate feelings. ‘We have a number of analysts and we find they’re increasingly becoming more global,’ insists Melanie Hogan, IR manager at US-based soft drinks giant Coca-Cola. ‘We do organize trips to our operations outside the US but we find that many analysts are increasingly taking the initiative themselves.’
Despite Winnitkzi’s comments, Hogan speculates that, ‘analysts’ level of interest may relate to the revenue that your non-domestic operations generate. After all, Coca-Cola accrues around 75 percent of revenue from its non-US operations so I guess that we probably find it easier to attract analysts than those companies whose US operations account for nearly all of their revenue.’
But surely Nike would bear this out? Of the $9 bn that it rakes in each year, some $4 bn comes from outside of the US. And yet Anguilla’s experience with analysts has been blighted by their blithely introspective stance. ‘Even when you give them details of your operations, when you begin discussing Europe or Asia, there’s an obvious drop-off in their interest,’ he complains, adding, ‘The sad irony is that a lot of brokerages have global capabilities. There’s no excuse for them not checking us out.’
For those who do come up against analysts with narrow horizons, investor relations can be a frustrating task. ‘They’re just after the easy life,’ sighs Moore. But she will concede that there are hurdles for any analysts that are looking at non-domestic operations: ‘Analysts can struggle to place a value on non-domestic operations. You can see why. If a Finnish company has a Russian plant that suffers economically, that’s not easy for Finnish analysts to quantify.’
Anguilla also accepts that apathy isn’t solely responsible. He suggests that the utopian notion of a unified global community is something of a fallacy: ‘Even for analysts at the bigger houses, foreign visits can be fairly intimidating. There are cultural barriers to consider.’
What to do?
Two things are clear. Firstly, just as there are good and bad analysts, there are good and bad investor relations officers.
Second, regardless of the quality of the analyst, following the guidelines of investor relations best practice will go a long way to soothing this investor relations headache.
And so to a remedy. The golden rule, apparently, is ‘Put up and shut up’. If you are faced with difficult analysts, deal with it. Accept the mindset and get down to the job. Moore sees this as key, stating, ‘It’s up to investor relations officers to get their story across. You’ve got to have a really proactive sell-side program.’ And Anguilla agrees, ‘These analysts are important and can really add value to your company. Every time you meet new analysts, you play a part in that. You’ve always got to be thinking How can we add value?’
It would be an exaggeration to say that attracting the attention of those analysts with stubborn tunnel-vision requires a military-style operation. But only a slight one. Anguilla urges that cultivating interest should form a significant part of one’s workload and be properly plotted in advance. ‘You really do have to sit down and plan it as part of your time,’ he says. ‘You need to have a good sense of timing and a really firm idea of what it is that you’re trying to accomplish.’
‘Knowing your target groups is vital,’ Moore comments. ‘Some brokerages have several analysts looking at different wings of the same company. It’s no use just picking any of them. You have to know precisely which analyst you should be targeting.’
Perhaps the most crucial rule of all is to maintain a consistently vibrant, proactive approach: if analysts aren’t prepared to come to you to do their research then you’ve got to get out there, do it yourself and thrust it into their laps. ‘It’s up to you to provide research for operations outside of the US,’ urges Anguilla. ‘And it’s not difficult. We even hire college kids to do store checks, just so that we can find out what’s selling and what isn’t. It’s very basic.’
More important is the type and quality of the information you offer. Effective communication is not simply a question of supplying a souped-up rehash of the company accounts. Breaking down data into relevant and manageable chunks is a very valuable tactic. ‘For a start, you’ve got to give them quarterly reports. If you don’t provide that, then you’re in trouble,’ counsels Moore. Providing context is also important.’It is crucial that you give some decent historical data to give them some background,’ adds Anguilla. ‘At the same time, don’t just give them consolidated figures. If you show them regional revenues, they get a better idea of the scale of your operations.’
But be careful. There’s a real danger of getting carried away in this. ‘You can over-rev with the quantity,’ warns Anguilla. ‘You need to be fairly simplistic and have a clear idea of what information you want to provide. It’s definitely an issue of quality over quantity.’ It seems that a set of data that is at once simple and comprehensive isn’t necessarily a contradiction in terms.
To that end, having the capacity to point to an effective and wide-ranging annual report, providing analysts with a ready reference tool, is a good foundation. If nothing else, it can quickly communicate the far-flung ambitions of your company while investing it with a global flavor: ‘We use the annual report to focus on all of our geographic groups,’ says Coca-Cola’s Hogan.
A readiness to drop everything and conduct one-on-one meetings with interested analysts is another pre-requisite cited by both Moore and Anguilla. ‘I’m always prepared to do Nike one-on-ones with visiting European analysts,’ says the latter. And Moore is equally forthright. ‘Good investor relations calls for really intense lobbying. Basically, you need the equivalent of very good buy-side one-on-ones.’
Happy holidays
Obviously though, there’s no need to bring the mountain to Mohammed if you can persuade Mohammed to get up and check out the mountain himself. Anguilla consistently strives to entice US analysts over to Nike’s non-domestic operations. His trusted tactic is to hold analyst meetings in New York, to ensure a good number get the basic message, while staging shareholding meetings at one of their operations in Europe. The effect is to arouse the curiosity of a wider audience, almost a carrot-and-stick effect. ‘These shareholder meetings are as much catering for European investors,’ discloses Anguilla, ‘as forcing US analysts to come over to Europe and take a look.’
Investor relations practitioners play a vital role in this act of enticement, Anguilla believes. ‘We try to help analysts,’ he says. ‘We’ll work with employers and try to set up a meeting with shareholders.’ As he sees it, ‘It’s difficult to step into a different financial community without someone shepherding the way.’ Moore also considers that it is up to the IRO to draw reluctant analysts into visiting non-domestic operations. ‘Proactive investor relations means trying hard to get analysts involved in what’s going on,’ she remarks.
Anguilla sees the results of this effort first hand. ‘We’ve just taken about 30 sell-side analysts over to see our new distributions in Belgium, Germany and Italy,’ he remarks, enthusiastically. ‘And you can see a whole lot of them thinking Hey, the world is different in Dusseldorf than in New York! It’s a golden opportunity to show them both the challenges and the opportunities that your non-US operations offer. And opportunity is there. The US has about 5 percent of the world’s population and does something like 55 percent of the world’s business. Someone’s missing an opportunity somewhere.’
Regardless of whether this sorry state of affairs boils down to autistic analysts or inactive investor relations officers, it’s a waste. Best practice investor relations requires that you follow Anguilla’s lead and treat analysts – be they good or bad – as if they are dogs in need of training. Assume they’re inherently mindless. That way it’s up to you to provide juicy, bite-size chunks of information and throw alluring sticks in the direction of your foreign plants. Then, hopefully, they can’t help but take a good look. And maybe they’ll come back for more.
