CIRI 2018: How the sell side looks at your company
Quality disclosures, quick response times and access to management are the top things that the sell side looks for from an IR team, according to Walter Spracklin, equity research analyst at RBC Capital Markets.
Speaking at the CIRI national conference earlier this month, Spracklin says that access to management – which has always been of clear importance – will be especially paramount now that Mifid II is in effect.
‘Being able to present management at any conference is a big deal for me. Management access begins with access and extends to NDRs [non-deal roadshows],’ Spracklin says. ‘With Mifid II, site tours will become even more valuable for me as well.’
Regarding the quality of disclosures, Spracklin notes that sometimes he wants ‘to rip my hair out’ because the information is so sparse and doesn’t fit into his financial modelling. Context about the figures disclosed is important, he says, including whether inflation has been taken into account during the reporting process.
This underscores the importance of a reciprocal relationship between the sell side and IR teams. Paul Butcher, vice president of investor relations at CN, says he learned this lesson when his CEO asked him to build a financial model for one of CN’s competitors.
‘Our CEO asked me to build a model of Canadian Pacific. I took an analyst’s model and added some of the ways that I would be looking at the company – we were focusing a lot on supply chain and volumes. Building a model for my competitors put me in the shoes of an analyst and also gave me a better understanding of my competitor. That was really useful so I could try to understand my competitor and my own model,’ Butcher says.
CN also conducted an investor perception study last year and have since changed what they factor into their annual earnings guidance. ‘We used to publish with EPS [earnings per share] guidance that would be very general,’ Butcher says. ‘We’d say We’re aiming for double digit growth. We heard from the investment community that we needed to be more precise, so now we’re providing a range and more clarity.’
Spracklin, who covers CN and 13 other companies, says he appreciates the relationship with Butcher because he knows he can call if he has an issue around CN’s quarterly results and update his model accordingly. However, he notes it’s important to remember that sell side analysts may not want to have a dialogue around whether their model is correct as it relates to guidance.
‘Guidance is a view, not a fact,’ Spracklin says. ‘We as analysts have to realize it’s a view, and it may be a biased view. So I have to keep my independence and have my own view... I may have my own thoughts and I don’t need to be reigned in.’