Attracting buy-side attention is one of the most challenging and fundamental jobs for IROs. With thousands of public companies competing for capital and newly public companies entering the fray every day, it’s more difficult than ever for IROs to get their companies on the radar screen.
A study conducted by Rivel Research that includes interviews with more than 300 buy-side analysts and portfolio managers suggests the top three sources the buy side uses to source new investment ideas are in-house research (85 percent), brokerage house research (75 percent) and articles in general business and trade publications (75 percent).
This means IROs should first target the buy-side analyst as a key generator of investment ideas within the institution. Analysts are known as the gatekeepers to the portfolio manager and should be a communication point for your company’s message. Find out who they are and get to know them.
Second, polish your media skills or work with your company’s communications department to seek out exposure in business and trade publications. Many investment ideas are generated through small but well-placed articles read by analysts or portfolio managers while commuting to the office.
Rivel’s study finds that improving financials and visibility can get small-cap firms on the radar screen. Small caps need to be more proactive by showing up at conferences, making presentations, having one-on-ones and doing roadshows.
The survey also finds that institutions conduct their due diligence phase by using in-house research to assess management credibility (83 percent), the company’s business strategy (77 percent), reliability of cash flow (72 percent), attractive earnings-per-share growth (68 percent), balance sheet strength (61 percent), return on invested capital (58 percent) and revenue growth (54 percent).
Intangibles now carry as much weight as the tangible metrics used to value companies. The Rivel survey indicates that key components of management credibility include the ability to meet or exceed stated goals (68 percent), honesty and openness (43 percent) and acting in the best interests of shareholders (15 percent).
Once an institution buys your company’s stock, communications become extremely important. Quarterly conference calls (79 percent) are the most important means of communication along with in-house research (79 percent) and SEC filings (73 percent).
When asked about forward-looking guidance, 65 percent of respondents rate it as ‘very important’, while 85 percent expect guidance to be issued quarterly. Companies that don’t provide earnings guidance may have a tough time attracting attention: 22 percent of respondents would avoid recommending or investing in a firm based on a lack of earnings guidance.
According to the survey, 56 percent of respondents bought stock as a result of interacting with the company’s IRO. More than half (55 percent) requested a meeting with a company as a result of conversations with the IRO, and 50 percent recommended a company to colleagues after interacting with the IRO. These responses indicate that the role of IR continues to increase in importance for the buy side. In some cases, buy-siders view the IRO as an expert on his or her company – someone they can count on to deliver the depth and breadth of information they need to make an investment decision.
