Aeroflot’s IR chief on targeting without direct peers

Mar 08, 2018
Andrey Napolnov, head of IR at Aeroflot – Russia’s only listed airline – talks to IR Magazine about new investor destinations and the impact of oil prices

Andrey Napolnov of Aeroflot

How do you identify new investors to target?

Firstly, we run a shareholder identification package, which includes shareholder ID, targeting analysis and a perception study. We look at some peers: global peers, peers from emerging markets and other Russian companies – not from the same sector because we’re the only airline trading – but Russian companies of a similar size or from consumer-related sectors. 

We try to identify whether or not we are talking to investors that have positions in our ‘peers’. Then, if these investors are already shareholders, we look at the difference between the stake they hold in Aeroflot and these other companies – what the difference is in exposure. We try to be proactive in targeting investors that are not part of our shareholder base.

How do you plan your roadshow activity over the year?
First we look at the overall conference schedule and add to our travel plans the key conferences we want to participate in. If we think we’re going to have some additional free time where we can be outside the office and on the road, we try to add some nearby cities or spend an extra day in the cities where these conferences take place. 

Mostly, we try to focus on and build our schedule around investor conferences rather than non-deal roadshows because we think this is more efficient in terms of our time and investor coverage. This is the case for key locations, say in the UK, Europe and the US. That said, it’s possible that at least in the mid-term the introduction of Mifid II may change our approach as some investors may prefer to approach companies directly rather than via conferences.

On top of that, we try to add two non-deal roadshows, ideally with management, but again just covering locations that we miss because our disclosure dates or some other event clashes with a major conference in that region. For example, we now miss a key conference that takes place in the US in late November/early December, which we had attended previously, because it coincides with our reporting date. This means the US is a roadshow destination for us because we can’t attend any major conferences there. 

And despite volatility in the Russian market in recent years most investors we were talking to five years ago are still with us. Even judging by the conferences that are hosted by bulge bracket banks abroad, for example, we still see key names in terms of importance – and new names as well. 

In order to diversify our investor base, we also started to look at locations that are new to us. We looked at Asian investors and investors in the Middle East. Reaching investors in new locations is also more efficient through non-deal roadshows.

Do you rely on brokers to support your targeting efforts?
Yes and no. No, because we do our targeting report ourselves and we look at the databases ourselves. Yes, because we do participate in investor conferences where there are a number of investors that register for a meeting with Aeroflot. We always try to highlight the list of investors we will be happy to meet during the conference: these investors are either our shareholders or potential new investors. 

But some banks do not have good relationships with a number of investors we are interested in. In that case we try to go on the road with a bank that has the specific contacts we need. 

What are the main targeting challenges you face?
I think the main challenge is that it is harder for us to identify the right investors to target, given that we don’t have direct peers trading in Russia. For example, if you have five companies in the retail sector, they can all look at each other and see who their biggest investor is and whether or not it is also investing in their own company.

Given that there is no other airline trading in Russia, we cannot do this. If we look at our international competitors in emerging markets, Turkish Airlines or LATAM, for example, the comparison for targeting may not always be representative because every airline and every transport company is unique to its exposure and to its geography. But there may still be some investment outcomes as a result of this strategic exposure: exposure to the market, to the economy, to the geography. So we definitely look at investors in our international competitors but keep in mind that they will not always be relevant benchmarks for us.

How do you typically approach meetings with new investors?
We put new investors into two groups. Group one is investors completely new to the airline segment and that means we have to talk a lot, not just about financials and forecasts and so on but also the wider context for our business – the market, our strategy, and so on. The first meeting with these investors never ends up with a financial result because you have to go over a lot of information. 

But if the investor has already invested in airlines or has been looking into the sector, you don’t need to spend a lot of time describing how airlines operate or industry-specific metrics, though you still need to cover a lot of information on the peculiarities of the market and usually you need a second meeting or a follow-up call, as well as an email detailing what has been discussed. That’s definitely very important because everyone is really busy and it’s easy to forget even a good story.

What has been the most common question from investors over the past year?
Given that this year we have seen volatility in the foreign exchange markets, which is a material factor for us, everyone was really interested in the implications of the foreign currency markets and the oil markets on Aeroflot. But that’s a question that will always be relevant because these markets are never stable, they always fluctuate and they always have implications for airlines globally, not only in Russia.

Russia is a bit different from other emerging markets and some developed markets when it comes to the airline industry, however. When the oil price goes up, investors say, ‘Aeroflot is an airline so an increasing fuel price is obviously negative’. And if the oil price goes down, everyone says, ‘Yes, but Aeroflot is a Russian airline, and the oil price has implications for the Russian economy in general’. It’s an interesting part of our investor case.

 

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