Transparency and clarity of communication are central tenets of investor relations, especially during a crisis. To deliver this, IROs and CFOs need to understand how their shareholder base has changed and what information investors and analysts want to receive in the coming months. Share price volatility shows little sign of calming to pre-Covid-19 levels, so navigating the uncertainty in a confident manner will be required.
Below is the IR-related information that CFOs and IROs will need to conduct effective and meaningful shareholder engagement during the coming months.
Analyze your shareholder base
Between March and April, there were record levels of trading volatility and volume, so many public companies will recognize a notable change in their shareholder base. A calm analysis of who traded in and out of your stock – and when – can lead to more enriching conversations with investors about why. Remember that investor engagement is most productive when it’s a two-way dialogue; your investors are navigating the same uncertainty as you are.
Some companies may find they’re in a different market cap classification from before, or notice a change in the type of investor entering their stock. There’s strength in understanding whether your story resonates more with growth or value investors, and whether you need, therefore, to tailor your investor communications.
Stock surveillance can be a tremendous resource in this respect, as Billy Eckert, head of surveillance and capital markets at Q4, shared in a recent post: ‘We’ve seen some great examples of IROs taking data to the next level, digging into the data and using it to guide the next set of actions, whether that’s honing messaging, changing course or targeting specific investors in the pipeline. These proactive IROs are hitting it out of the park by looking for ways to improve the value delta we’re seeing in the market.’
This can also help to inform conversations at the board level about investor relations. For instance, a record number of poison pills are being adopted by US companies this year to ward off interest from activist investors. While this technique has previously been frowned upon, proxy advisers and investors are largely understanding of circumstances this year. Alerting your board quickly that an activist is taking an interest in your company could lead to sharp, investor-related decisions.
Understand index rebalancing and rules
IR professionals are primarily focused on investors with actively managed portfolios but, with the continuing momentum toward passive strategies, it’s never been more important for CFOs to understand the nature of passively managed index funds.
Just as recent volatility will have caused turnover of active investors, it may also lead to exclusion or inclusion in index funds, depending on their rules for inclusion. Many passive money managers are preparing to sell off large quantities of company stock because it no longer meets the inclusion rules for a passively traded fund. Rules can relate to any number of metrics including market capitalization, volatility, float, sector, balance sheet or capital deployment. According to a data pull from S&P Global’s website, a large number of funds will rebalance between June 19 and June 30.
IROs and CFOs have the time to understand the inclusion rules of the indexes they’re in and, if necessary, provide an update to the board on what to expect in terms of buying and selling when these rebalancing dates arrive.
Conduct scenario analysis
Since March 16, 841 companies filing with the SEC have withdrawn annual guidance, while 69 companies have withdrawn quarterly guidance, according to recent analysis from IR Magazine. Given the complexity and uncertainty we all face, this was a reasonable step for many companies, and one investors and analysts understood.
But it does leave a vacuum of information for the Street to interpret, which is where scenario analysis can help. Whether it’s communicated on the next earnings call, during a dedicated investor or analyst day, or in an investor update, scenario analysis can provide investors and board directors with a better picture of what the coming months may hold.
CFOs can connect the dots between financial planning & analysis, investor relations and the board to provide a clearer picture of what the future may hold. None of us is in a position to communicate with any certainty, but we can communicate confidently. By following these steps, you’ll be able to have more enriching conversations with your investors, analysts, management team and board directors.
Learn more about the metrics that matter most to your leadership team by reading How to deliver valuable investor insights to the C-suite.