The Global Financial Crisis, from its early roots in 2008, has given rise to a tumultuous period for financial markets, unlike any other since the Great Depression. A dollar at parity and above, coupled with relatively high interest rates, has forced businesses to contract and sunk industries such as manufacturing, retail and tourism.
Such local and international market conditions have convinced many Australian company boards to place their investor relations ambitions on hold. Many companies think investors don’t want to inject money in a sustained bear market. Consequently, they consider it better to lie low and wait it out, rather than engage with existing shareholders and potential investors.
Well, here’s the thing. It’s dangerous tactic and here are six reasons why.
#1. When it’s tough, the tough get going. If there’s a lesson from the history of financial markets never to ignore, here’s this: Investors who are smart enough to buy shares in a down market are the ones most likely to benefit later. Many professional investors know this and actually scout for companies even harder during a recessionary period. The clear message to Australian-listed companies: Never hang up on investors.
#2. Investor relations a necessity. Even in difficult times, companies should stay visible and build relationships. Investors looking to invest need high-level information to help their decision-making. Without this information, client advisers, potential investors or even existing shareholders will have difficulty understanding the strategic or operational significance of an announcement. So, stay in touch, communicate key facts and focus on the long-term story.
#3. Small-caps have more in the game. Smaller companies, more than others, err in cutting off funding for investor relations at a point in the investment cycle. But that’s like shooting yourself in the foot. Let me give you two reasons why it is so.
One, investors never stop looking for the next growth company; and two, it’s the small companies that have the greater growth prospects – of doubling in size – and the greater opportunity to gain market share.
Smart investors know this and will be looking to invest, regardless of where we are in the investment cycle.
#4. Go for the small investor. A small company looking to attract new investors should not just focus on big investors or shareholders. It needs the goodwill and support of smaller ones too. It is important that all shareholders are kept informed at all times. The most effective communication is a regular and open platform, whether the news being relayed is good or bad. The investor section on a company’s website is a key focus and should include accurate and latest information about the company.
#5. Make your message count. The aim of any message is to get the company onto the radar screens, boost liquidity in the stock and enhance share price. Provide information and analysis that help investors develop a well-rounded understanding of the company and its strategies. This will help companies achieve a fair market valuation for its securities, create a body of investor support and a climate of favorable opinion.
#6. It adds value, too. According to the Australasian Investor Relations Association (AIRA), good investor relations practices could contribute more than 10% to a valuation premium for listed companies. On the other hand, poor investor relations could contribute to a valuation discount of 5% or more.
Whether your company engages a professional investor relations firm to communicate with potential investors or you do it yourself, don’t ignore the benefits of investor relations at all times. Now, this is even more important, given the early signs of recovery.
Rod North is the founder and managing director of Bourse Communications, and a 25-year financial services industry veteran. He is the author of “Understanding the Investment Clock-Your Road to Recovery.”