More UK small caps seeking IR support post-Mifid II, report reveals

Feb 05, 2019
EU regulation having detrimental impact on liquidity of small-cap shares

More than half of small and mid-cap companies are working with investor relations advisers as the availability and quality of analyst research continues to decline, according to a new report.

The report, commissioned by broker Peel Hunt and the Quoted Companies Alliance (QCA), conducted a survey of 102 UK-based fund managers and 105 small and mid-sized public companies to understand their views on the one-year-old regulation.

More than half (52 percent) of the companies surveyed say they are taking steps post-Mifid II to increase their visibility to investors by working with investor relations advisers, while 81 percent are improving their corporate website. Additionally, more than three in five say they are increasing their PR efforts to seek media coverage and 41 percent are boosting their retail investor engagement.

Capital markets days, improved corporate websites and the commissioning of research are highlighted as the best ways to increase a company’s visibility with investors, the report authors suggest.

‘It appears corporates are taking back more control of their investor engagement by improving their corporate websites, increasing their PR efforts, working with independent investor relations advisers and increasing retail engagement to improve their own visibility among investor audiences,’ the authors write.

Reduction in research expected  
Nearly two thirds (62 percent) of investors say that since Mifid II was introduced, less research is being produced on mid and small-cap companies, with a third of survey respondents expecting further reductions in both the volume and quality of research in the future.

Seven in 10 fund managers add that their access to research providers has decreased as a direct consequence of Mifid II, with 56 percent confirming that they are worse off as a result.

Additionally, 41 percent of the companies polled and 63 percent of investors say the regulation has had a ‘detrimental’ and ‘negative’ impact on the liquidity of UK mid and small-cap shares over the past 12 months.

‘The unintended consequences of Mifid II that we have seen so far are just the beginning,’ notes Steven Fine, CEO of Peel Hunt. ‘Specialists will become generalists. Generalists will cover too many stocks and their product knowledge will dilute. Quality will decline, gaps will appear in the market and many smaller companies will de-rate.

‘Holding periods will get longer, liquidity will dry up and ‘take-privates’ will increase. Ultimately, it looks like the situation has to get worse before it can get better.’
 

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