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Jun 08, 2020

Engagement advice for small and micro-caps amid Covid-19

How to stay close to investors while keeping your distance

It can be challenging for small and micro-caps to garner attention from high-quality investors and sell-side analysts in the best of times. The unsettling impact of the Covid-19 crisis has made this always-difficult job even more challenging. Uncertainty, however, should not mean inaction.

Regardless of circumstances, companies and their IR teams should focus on developing a clear and compelling investment thesis, employing consistent communications, establishing and building management credibility, targeting appropriate investors and analysts through professional outreach and engagement, and cultivating interest through ongoing follow up and relationship-building.

Companies that acknowledge the ‘new normal’ and incorporate change into their communications strategy can help shield themselves from the uncertainty that erodes value. They should consider the following:
– Investors and analysts want to know how the virus is impacting all aspects of a company’s business, from revenues and cash balances to employee health and morale. More importantly, how are companies positioning themselves to address the uncertainty – what levers can be pulled and how many ‘what if’ scenarios have you prepared for?
– Engagement needs to take place virtually for the foreseeable future. Over the coming quarters it’s likely to become a blend of virtual and in-person, but may not return to as much in-person interaction for some time. Therefore, it is important to have a robust virtual engagement plan in place, and then adapt over time as appropriate.

A great time to tell a good long-term story

For companies that have compelling long-term stories, built on solid fundamentals and sound growth strategies, high-quality, intrinsic investors will be interested to hear these stories, even more so in a time where the near to mid-term outlook is uncertain for many firms. 

In general, after the initial period of market volatility, we have been seeing a high level of engagement from investors. They are at their home desks, hoodies and all, ready to engage with CEOs and CFOs.

Virtually the same

While Covid-19 has kept most of us close to home, technology is allowing companies to interact with investors around the world. Freed from the restrictions of rush-hour traffic and airport security lines, our clients are speaking with analysts and fund managers across the US, Europe, Australia and beyond. 

Companies are also leveraging the advantages of low-cost virtual interactions by incorporating a wider range of executives into their investor meetings. CTOs, CSOs, CMOs, division heads and others can now participate in investor meetings without the added costs and logistical headaches associated with travel. These professionals can add insight while providing evidence to potential investors of a company’s depth of talent.

Embarking on investor outreach: Finding the right time

For companies that have not previously embarked on proactive investor and analyst outreach programs, it may be daunting to contemplate commencing one during this time. Keep in mind that it is a process – think marathon rather than sprint. Depending on the company’s fundamentals and short/mid/long-term outlook, it can be worthwhile to begin by crafting the investment story and start planting seeds in the investment community.

Fundamental topics during Covid-19

While it is still difficult to forecast the complete impact of Covid-19, some key topics for companies to focus on in their communications include:
– Direct and indirect impact of Covid-19 on the business, and any actions taken/being taken to alleviate impact
– Risks on both the supply and the demand side
– Flexibility in business model, with clear explanation of fixed/variable costs
– Business model changes in different market environments
– Bridge/primary drivers for Ebitda
– More focus on balance sheet, cash flows and liquidity
– Guidance, if any, and corresponding macro assumptions.

Loren Mortman is president of The Equity Group

This article originally appeared on The Equity Group website here