The sun never sets on the British empire, it used to be said. If stocks comprise an empire, then the saying still holds true. While the US is the political superpower of the 21st century, and indeed the number one source of global equity capital, London is next in line for any company seeking international investors.
But with euros finally lining pockets, is the continent overtaking the UK? The region’s fad for equities and the advent of the euro were meant to usurp London as Europe’s premier money center. ‘But however continental Europe is developing, there is more equity investment managed out of London than any continental European center,’ states Edmund Byers, managing director, capital markets advisory, at Cazenove, London’s preeminent broker.
And there’s more money coming, with continental institutions like Deutsche Asset Management and US giants like Fidelity managing their global funds in the City of London. Meanwhile, other US investment houses are setting up London-based research arms, so even though the portfolio managers are back in Boston, New York or Los Angeles, companies visiting London can meet with their analysts.
What will happen if and when the UK adopts the euro? Most UK institutions, especially insurance companies, need to match assets with liabilities in currency terms, so they invest mostly in UK stocks. But as the UK moves closer to the Eurozone, a lot of UK investment houses are starting to look at equities on a pan-European basis. Generalist UK fund managers, which now concentrate on the FTSE 250, will start focusing instead on the Euro Top 300. That means it will be harder for smaller UK companies to get themselves on the investment map, except as part of dedicated small-cap funds, while continental companies will find a whole new investment audience.
Pinstripes out
The confluence of continental and transatlantic influences means the City is no longer all pinstripes and bowler hats. ‘Completely polyglot; a big cocktail,’ comments Laurence Hollingworth, managing director and head of international capital markets at Cazenove.
There are few other generalizations to be made about London’s vast and varied pool of investors. As with any roadshow, a trip to London demands careful targeting to plan your meetings before you knock on any doors. In the UK, far more than in the US, that’s the job of a securities house which ‘sponsors’ the company and sets up the meetings. It may instead be a financial PR firm or specialist IR firm, but more often it’s a broker like Cazenove.
The relationship between a UK company and its corporate broker is often unfamiliar to non-UK companies. Think of a US-style investment bank, but instead of cutting loose when the deal’s done, the corporate broker sticks around to provide feedback from the market, drum up interest for the stock, and organize meetings with institutional investors. It’s like having an IR advisor, NYSE specialist and investment bank rolled into one.
While a firm like Cazenove doesn’t have formal corporate broking relationships with non-UK companies, it does have de facto ones. Colgate-Palmolive, for example, has been followed by Cazenove’s analysts for 18 years, and the bank regularly helps organize UK roadshows, helping position the equity story and providing feedback. ‘It’s a relationship of trust and understanding, which goes to the heart of what corporate broking is all about,’ Hollingworth remarks. ‘The key is to have someone absolutely in touch with the market, acting as a conduit for investors’ views.’ He adds that Cazenove is increasingly advising European companies on how to position important corporate developments such as acquisitions.
Colgate-Palmolive has indeed conquered London, winning best North American company IR in the UK market at the Investor Relations Magazine UK Awards in 2000 and 2001. Colgate’s head of IR, Bina Thompson, visits London with senior management two to three times a year, usually for a day and a half at a time.
What’s the difference between London and Colgate’s home turf of New York?
‘Tea at every meeting,’ Thompson chuckles, adding, ‘They’re more polite, and they’re longer-term focused, looking for the bigger picture. These are sophisticated investors; they do their homework. There’s certainly more momentum money than five years ago, but the lion’s share of London investors have a greater interest in strategic issues.’ That suits Colgate, whose presentations – and they never go anywhere without one – are focused on long-term strategy.
Super investors
Tony Workman, the new head of investor relations services at Waymaker, points out that fund management consolidation in the UK means perhaps 70 institutions control over 80 percent of funds under management. ‘US roadshows can sometimes extend to 200 meetings, but it can be a lot easier in the UK market because of the concentration of equities under management,’ he says.
However, while a blue-chip multinational might just see the top tier institutions, which Workman pegs at over £12 bn in funds under management, small-cap companies without a lot of liquidity need to target smaller institutions and private client brokers like Killik & Co.
Who to see is the biggest question on any IRO’s mind. Heather McGregor, a former head of ABN Amro’s equity research who now specializes in communications posts for London-based recruitment consultant Taylor:Bennett, says non-UK companies should take the advice of a corporate broker with strong UK links such as Cazenove, Hoare Govett and UBS Warburg.
If your company already has research coverage from London analysts, stick with them or alternate if you have more than one firm covering you. Consider a presentation for other sales teams outside of whatever program the sponsoring broker sets up. UBS Warburg, for instance, has a strong mid-market group focusing on companies under £1 bn in market cap, while West LB Panmure is known for its life sciences coverage.
There are alternatives to relying on a broker to host your London roadshow. A handful of financial PR firms like Brunswick and Financial Dynamics can do the job, though they lack the institutional sales force and market intelligence of an investment bank. There are also dedicated IR consultants like Makinson Cowell, which is populated by former brokers and fund managers with lots of City knowledge and experience as well as the right connections.
Consistent message
A proactive communications program in conjunction with a London roadshow is advisable, and it’s wise to be sensitive to the corporate disclosure environment. This is where a firm like Waymaker comes into the equation by getting the message out to targeted audiences through press releases, webcasts and conference calls. Waymaker is currently gearing up to be a primary information provider (PIP) under the Financial Services Authority’s new system for the dissemination of price sensitive information.
‘The technological advances in the dissemination of company information have been acute,’ Workman says. ‘In the UK we have always had Reg FD in a sense, and the new Market Abuse rules under N2 have only enforced this. The end result is very transparent media, with the biggest breakthrough being the empowerment of quoted companies to ensure the consistency of message themselves instead of only relying on corporate brokers or financial PR firms. There has been tremendous growth in corporate communications teams that can massage their own message and go straight to the doorstep of the portfolio manager.’
Selective disclosure is just as taboo here as in the US, which means you should include the press and broader public in any roadshow message. If the object of a trip is to brief institutional investors and analysts about a merger or other big transaction, a conference call for the press can get the message heard beyond the one-on-ones. ‘Clarity, consistency and transparency,’ enumerates Workman. ‘You need to ensure the consistency of your message, getting it out to an international audience in an approved format.’
London’s financial media are consolidating, Workman observes, with a major shake out going on in the internet arena. ‘The dot-com mania has come and gone and the retail investment community is not growing as fast as it was.’
But while the number of financial media outlets is shrinking, the influence of those remaining is on the rise. And as Workman points out, the increasing importance of stakeholders like employees makes media relations crucial to the IR toolkit.
On the beaten track
Taylor:Bennett’s McGregor says a common mistake is to assume all investor meetings will be within the City of London, a small and concentrated business area east of the main tourist spots. While around half of financial firms are in the City, the rest are scattered from the West End to Canary Wharf in the east beyond the City. Capital International, for example, is in Covent Garden.
Thus the challenges facing any London roadshow: ‘Traffic, traffic, traffic,’ quips Amanda Bassett, the London-based IR director for Infonet Services Corp, a global telecoms firm from Los Angeles. She boasts that her CEO circumvents traffic jams by taking the Heathrow Express train to and from the airport.
Don’t trust London’s famous black cabs for getting to meetings. Like New York’s yellow cabs, they seem to vanish when it rains. Instead arrange for a car from a firm like Meridian to take you and senior management from meeting to meeting. That way you can load up the ‘boot’ (trunk) with presentation materials and only take what you need into each meeting.
Beware of staying right in the City with its poor choice of hotels such as the Thistle Tower (‘Horrible!’ says one rueful guest), or the Howard (‘Only its location commends it’). A popular new option in the City is the stylishly renovated Great Eastern Hotel next to Liverpool Street railway station. The best places for your CEO to rest his meeting-weary head are One Aldwych and the Savoy, located between the West End and the City. The neighborhoods of Mayfair and Picadilly are further west but still convenient. The Colgate team always stays at the Berkeley in Knightsbridge.
Unlike in the US, London hotels are not really viable for meetings. Bassett favors the Brewery, which Infonet used last year for a quarterly results presentation which was webcast around the world. She also recommends the City Presentation Center, while commenting that the Insurance Hall and the Glaziers Hall are cheaper but too big and less personal.
The cost-conscious way to plan a group meeting is not to plan it – let a broker handle it. ‘London’s private rooms and halls are ludicrously expensive, and they have mediocre food,’ McGregor cautions. ‘But brokers jump at the chance to host a lunch and introduce you to their clients.’
Going one-on-one
Stock selection in London is heavily driven by buy-side analysts, not necessarily portfolio managers, notes McGregor. ‘That might come as a shock for a company from continental Europe,’ she says. ‘The analyst always drives the meeting, not the fund managers.’ She recommends one-on-ones with big institutions that have their own analysts then a group meeting for second tier portfolio managers. When meeting with buy-side analysts, be prepared for in-depth questions.
Infonet’s Bassett points out that US companies are used to shorter, half-hour meetings compared to 45 minutes to an hour in London, so cautions against trying to fit too much in a day. Three one-on-ones in the morning, a group lunch, then a presentation to a big brokerage sales team in the afternoon would be a good schedule.
The London investment community likes a very straightforward presentation, Waymaker’s Workman observes. Indeed, at a group meeting, many investors don’t even bother watching the prepared presentation but only sit up and pay attention when Q&A begins. ‘It’s the quality of the senior management themselves they’re interested in, and they want to see them under a bit of pressure during the Q&A,’ he says.
Having steered numerous roadshows in the UK, the US and beyond, Cazenove’s Hollingworth has another take on the difference between the US and the UK investment communities: ‘There are still a lot of investors here who like to hear the equity story, the big picture,’ he says. ‘By contrast, in the US there is an increasing preponderance for the buy side to go straight to the Q&A.’
McGregor says the members of the UK investment community are traditionally courteous in person, considering unnecessary aggression to be bad mannered. But they will give honest criticism through the sponsoring broker.
Indeed, a major role of a good sponsoring investment house or IR firm is to pass on feedback after the meeting. While some portfolio managers may claim to ‘give it to you straight’, most will give their opinions much more honestly to an intermediary. Cazenove typically relays feedback without identifying who said what, unless an institution specifically asks to have their remarks attributed.
It may be, though, that as London keeps going global, investors here may become less reserved in expressing their opinions. While you can still count on a civilized cup of tea at meetings, as one observer warns, ‘London investors are fast, hard-nosed, and some can be bloody ruthless.’
Visitor information
Where to stay
One Aldwych
1 Aldwych, WC2B 4RH
Tel: 7300 1000 Fax: 7300 1001
The Berkeley
Wilton Place, Knightsbridge, SW1X 7RL
Tel: 7235 6000 Fax: 7235 4330
e-mail: [email protected]
Great Eastern Hotel
Liverpool Street, EC2M 7QN
Tel: 7618 5000 Fax: 7618 5001
The Savoy
Strand, WC2R 0EU
Tel: 7836 4343 Fax: 7240 6040
e-mail: [email protected]
Where to present
The Brewery
Chiswell Street, EC1Y 4SD
Tel: 7638 8811 Fax: 7638 5713
e-mail: [email protected]
City Presentation Centre
4 Chiswell Street, EC1Y 4UP
Tel: 7628 5646 Fax: 7628 6776
Glaziers Hall
9 Montague Close, SE1 9DD
Tel: 7403 3300 Fax: 7407 6036
e-mail: [email protected]
The Insurance Hall
20 Aldermanbury, EC2V 7HY
Tel : 7417 4417 Fax: 7600 4838
e-mail: [email protected]
Sample of sell-side firms
Cazenove
Credit Lyonnais
CSFB
Deutsche Bank
HSBC
Lehman Brothers
Merrill Lynch
Morgan Stanley
UBS Warburg
WestLB Panmure
UK financial publications
UK magazines
Investors Chronicle
The Economist
Personal Finance
UK newspapers
Financial Times
Financial News
Investment Advisor
UK e-zines
citywire.co.uk
FTyourmoney.com
The Motley Fool UK
Sample of buy-side firms
Capital International
CGNU
Clerical Medical
Credit Suisse
Deutsche Asset Management
Fidelity
Foreign & Colonial
Gartmore
Hermes
Invesco
JPMorgan Fleming
Jupiter
Legal & General
M&G
Merrill Lynch
The Prudential
Royal & Sun Alliance
Schroders
SEB
Standard Life
Zurich Scudder
