Australian issuers should improve investor days, finds research

Mar 13, 2015
<p>NASDAQ study of investment metrics suggests IROs should improve meetings coverage</p>

A shift in the metrics owners of Australian shares use suggests IROs could be reaching out to their investment community more efficiently, finds a NASDAQ study.

The report, which examines how the largest buyers of Australian stocks in the materials and energy sector determine which stocks to pursue, shows the majority of buyers are switching the metrics they use. In both sectors, value metrics are the most prevalent, closely followed by profitability measures, which make up 35 percent of the screening metrics in the materials sector.

The study cites a number of reasons why this may have happened, stating that buying activity could largely be spurred by a 2014 panel that looked into whether Norway’s $870 bn government pension fund should divest its fossil fuel companies, and concluded that the ‘worst climate offenders’ should be excluded on a case-by-case basis.

Kevin Langdon, senior director for Asia-Pacific at NASDAQ and author of the study, suggests that in light of this information and shifting corporate access rules, strategic investor engagement will become yet more important in what he calls an ‘intimate’ market.

‘The size of the Australian market allows IROs to routinely speak with a wide swath of domestic fund managers, as these firms are concentrated primarily in just two cities: Sydney and Melbourne are host to more than 85 percent of equity assets under management,’ Langdon continues. ‘The effect these [corporate access] changes will have on Australian institutions should be similar to the effects on UK institutions. It’s commonplace globally for issuers to rely on corporate brokers to plan or schedule roadshows.’

He also suggests IR teams should pay more attention to strategic analytics that can identify the specific metrics that are key to investors’ buying decisions, and use them to make sure the ‘right’ investors are invited to their results or teleconferences, or to a catch-up on them.

‘With many investment firms having mandates on a minimum number of meetings required with company representatives prior to making an initial investment, there is no viable alternative to in-person meetings, but participation in earnings results calls will educate new ‒ and existing ‒ investors on the health of a company, which in turn will provide more educated conversations during the subsequent face-to-face meetings,’ Langdon explains.

He adds that as some proxy advisers are now offering their services to connect issuers and investors directly, viable alternatives to using brokers are emerging. ‘As the demand increases for showing return on investment on expensive roadshows, we will see a corresponding increase in the amount of effort IR teams put into strategically targeting the ‘right’ institutions,’ he concludes.

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