Aira survey reveals poor sell-side research trend

Oct 24, 2018
Institute plans to adapt best practice guidance to structural changes

A survey from the Australasian Investor Relations Association (Aira) finds that more than 70 percent of respondents from the IR community think sell-side earnings estimates are increasingly flawed and out of date.

Around 40 percent of respondents say sell-side research has depreciated in quality and quantity over the last 18 months, much of it containing dated and unhelpful information. In that time, firms in the Australian Securities Exchange’s (ASX) top 100 say they have recorded a considerable drop in analysts’ earnings coverage.

Community members say the ASX should update its Guidance Note 8, which states that a company is not obliged to correct an analyst’s figures in line with its own internal earnings estimates.

‘This is problematic given that the research indicates sell-side research is increasingly incorrect or out of date,’ says Ian Matheson, Aira’s CEO. 

The call for an update comes as structural changes in IR, such as those created by Mifid II, take effect on consensus estimates. IR professionals say changing the clause would prevent bad data from misleading investors. Around 75 percent say their company’s consensus numbers differ from publicly available figures, while just less than half say they are apprehensive of such data being fed through the media to investors.

Inaccurate public consensus figures are making it harder for IROs, as the interface between investors and the wider market, to manage consensus. According to Matheson, some companies have dealt with the challenge by issuing earnings guidance to their shareholders. He adds, however, that not all companies abide by this practice.

‘Our understanding of the regulator’s view is that companies need to be consistent when it comes to providing guidance; they are not encouraged to provide guidance for one period and decline to do so for future results,’ he says.

Around 70 percent of respondents say they prefer numbers calculated by the company to external figures when mapping consensus. Some IR executives are resorting to solutions such as direct meetings with investors, adopting investor targeting tools and even using multiple brokers to organize meetings.

Matheson concludes that this ‘demonstrate[s] a willingness among the IR community to adapt to changing market dynamics over time’.

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