Listed Equity Bulletin 17 January 2023

2023: Investor Communication Update

Feedback from investors suggests that the current rate of change in markets has been so great that uncertainty remains very high.  Many companies would benefit from updating their view on the outlook and its impact on their investment proposition.

Just as changes in regulation and technology have required companies to take more responsibility for communicating with investors, we believe they need to adapt to the market environment and remain flexible in their approach to communication.  With inflation potentially peaking, interest rates still rising, and a growing fear of a global recession, many investors would appreciate updates from company management on how this might impact their addressable markets and how they are responding.  As discussed in this article, short communication events are an efficient, effective and popular way to deliver the message and stay in touch with investors.

Throughout the last few years, a series of global macro events have significantly affected the trading backdrop for virtually all listed companies.  Covid-19 was a major factor, but just as it seemed we might return to more benign operating conditions at the beginning of 2022, the Ukraine war, energy shortages, supply chain issues and inflation combined to reduce visibility and further increase uncertainty.

The provision of shorter-term guidance remains a challenge for many companies, but as investors look to identify which may have suffered a disproportionate share price impact and represent good value, company management teams need to address some critical questions:

  • Do your addressable markets still present the same characteristics as in 2019?
  • Can you identify significant business opportunities?
  • Has your strategy changed to address these opportunities?
  • What are your short-term initiatives and priorities?

We believe a short communication to reiterate the investment proposition and substantiate the longer-term potential and objectives of the business is beneficial.  This can be done without providing further specific short-term guidance, serving as a reminder of why investors should invest in your business.

The context for this advice is that many investors are beginning to doubt some of their long-held business assumptions, and many companies now feel that the market may be mispricing the true long-term value of their equity.  These updates can highlight a potential mismatch while describing the context for future decision-making.  They can also serve as a helpful reminder and provide investors with a framework to think about the company and its markets.

Format:

To address investors’ concerns relating to uncertainty and the specific impact of macro concerns, a company’s communication approach should look to address the following points:

  • Confirm business is on track and, if not, outline the steps being taken to remedy.
  • Take the opportunity to reinforce the positive long-term investment case.
  • Acknowledge that management is dynamic, adapting strategy to changing conditions.
  • Proactively outline the company’s response to a changing market and investor expectations.
  • Outline how the company plans to exit any downturn better positioned than when they entered it.

The update could take many forms; a letter, video or a small interactive event conducted in person or remotely and recorded so investors can review at a later date.

Large events, such as capital markets days (CMD) are still valuable but consume a lot of resource, from both the company presenting and from investors.  Smaller investor events, as described above, can usefully complement a CMD and regular results meetings.