Tips for building coverage
Q. The coverage of our stock has changed hands at a big buy-side institution and I've been trying to figure out who the new person is for weeks, but to no avail. How on earth can I get hold of them?
A. The previous analyst should have been in touch with you about the change, but this doesn't always happen. First try calling the switchboard and ask who is covering your sector. If that doesn't work, ring a friendly analyst or salesperson on the sell side. They have a vested interest in knowing exactly who is covering what on the buy side, and they should be able to give you all the details you need (and possibly some that you don't!).
Q. I work for a small but successful tech company that has always had trouble getting enough sell-side coverage. What's the best way to increase the research on my company when sell-side analysts are so reluctant to initiate coverage?
A. Coverage has been a long-standing problem for IROs and getting more of it is a huge achievement in your career if you work for a small cap, especially now. The fact is that there are fewer analysts out there and those who are left often have to cover more companies. So they're overworked (though still far from underpaid, unfortunately!) and not very keen to increase their workload further. All the UK houses, for example, still cover the FTSE 100, but their coverage of smaller companies is even patchier than it was before.
There are two reasons why your company might not get the coverage it's used to and the most common one is just overall layoffs in the City and on Wall Street, which have nothing to do with the independence of research. The second reason is that while your corporate broker or favored investment bank might have always covered you, the whole independence of research issue now means automatic coverage is no longer a given. And even if they do cover you, any research from your corporate broker or investment bank will probably be discounted as biased by investors.
Winning real coverage of your company that the buy side will value requires that you focus on certain analysts and constantly talk to them about your company. Better still, look at the Greenwich or Institutional Investor magazine rankings and find out which analysts are ranked in the lower half of the field. Choose one or two to target for additional coverage as these are the ones who still have to make a name for themselves and need to differentiate their research – perhaps with coverage of your company. By contrast, top-ranked analysts will have little time and interest, and nothing particular to gain from covering you.
One of the best ways to get analysts to pay attention is to become a good source of industry information for them. So, if you're at a small food retail company and everybody wants to know about the sector, but none of the big players are talking, you can become a good source for the analyst. Hopefully the analyst will remember you and pick up coverage of your company when the opportunity arises.
Q. My company has been on the upswing for some time now, but we continue to be underrated by one particular sell-side analyst. What can I do?
A. Have you done everything possible to get this 'outlier' to understand your company's business model? Site visits? Introductions to middle management and to customers? Failing that, have you tried taking them to the opera or even to a strip club? Everyone has their price!
Also, is this a rated analyst we're talking about? If not, then it doesn't really matter how he rates your stock, and the only downside is that he'll have too much time to talk to press as no-one on the buy side will be interested in hearing what he has to say.
If this is a rated analyst, encourage your corporate broker or preferred investment bank to hire him and his team. This way they won't write you off any more because you're a corporate client. Eliot Spitzer or not, sell-side conflict of interest is a reality; make it work for you!
E-mail questions to Heather McGregor – advice@irmag.com. McGregor is a former IRO and investment analyst who currently works on IR assignments for Taylor:Bennett, an executive search firm specializing in communications jobs