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Dec 01, 2021

Prioritizing time with the sell side

IR teams consider a range of factors when deciding which brokers to partner with, finds Tim Human

A key responsibility of investor relations is making sure the company and its sell-side analysts work together in the most effective way. That means carefully allocating time and access to the brokers that will have the most influence on the investors you are trying to reach.

For companies with a large number of analysts, this process becomes more complex. While overall sell-side ranks have declined in recent years, large caps and growth firms commonly report more than 30 followers. The highest-profile names may have in excess of 50 firms penning research on them.

Many IR teams think of their sell-side analysts in terms of tiers, with the top group receiving more attention and access than those below. Some go further and devise systems to rank analyst coverage against a range of factors, from research quality to event execution and feedback provision.

The virtual engagement ushered in by Covid-19 has both helped and hindered these deliberations. On the one hand, it’s easier to make management available to a wider variety of brokers. On the other, the old way of measuring the success of roadshows and conferences needs a rethink. New tech tools coming to market may offer a helping hand to IR professionals as they seek to track the influence of their sell-side following.

Internal segmentation

‘It’s important to say that some analysts are much more active than others, which I guess is the same for all companies,’ says Daniel Bohsen, corporate vice president and head of investor relations at Novo Nordisk.

The Danish healthcare company, which won three prizes at the IR Magazine Awards – Europe 2021, including best overall IR by a large cap, goes through a process roughly once a year to place its 30-plus analysts into tiers. ‘We do an internal segmentation,’ explains Bohsen. ‘Based on that, we roughly divide the analysts into three groups. Everybody gets the same service but we try harder to stay in touch with those in the first group on a regular basis.’

A range of factors goes into the segmentation process. Novo Nordisk considers the quality of research output, external rankings, such as those by Institutional Investor, and the reach of the firm among investors. It also uses results from its own perception studies, which include a question asking investors to name the top analysts they follow. Pre-Covid, IR team members who focus on corporate access would also give scores based on the execution of roadshows and conferences.

Once the information is collated, the team sits down and discusses the results. The brokers are then placed in a ranking – but Bohsen stresses that the specific position is not important: it’s the tier in which each broker ends up that matters. ‘If you are in tier one, you will get a roadshow almost every quarter, and most often with management,’ he explains. ‘If you are in the third group, you will get roadshows less often.’

While access to management is limited, Bohsen says the company almost always says yes to IR involvement in conferences or roadshows. ‘If a small broker – say a tier three – comes to me and asks to do a roadshow in Dublin, Luxembourg or Amsterdam, we will say yes, but of course we cannot promise CEO time.’ Novo Nordisk also makes sure to spread events across different firms. For example, the company’s quarterly London roadshow normally rotates between the big brokers in the UK.

Bohsen adds that different analysts have different skillsets, so you cannot judge them only on the quality of their written reports. ‘Covid has made it clear to me that analysts have different preferences,’ he says. ‘Some have really enjoyed sitting at home writing very high-quality research. Others have felt trapped because normally they don’t spend a lot of time writing, they are more often on the road, talking with all kinds of players in the industry. We put it all together and try to come up with some kind of segmentation.’

This is an extract of an article that was published in the Winter 2021 issue of IR Magazine. Click here to read the full article.