Small and mid-cap survey highlights supply and demand gap in capital markets days
Investors consistently point to capital markets days (CMDs) as the best way to improve company visibility for small and mid-caps – but few companies seem to be taking note.
In fact, when asked what smaller firms could do to increase visibility with investors, 68 percent say companies should hold a CMD. This has been the most popular answer on the investor side for the past three years, according to the Quoted Companies Alliance and Peel Hunt small and mid-cap survey 2022.
Despite this, just 26 percent of UK small and mid-cap companies actually say they held a CMD in 2021. And while it might be tempting to put that low number down to the pandemic, with fast-changing restrictions making events more difficult to plan, the figure is only 3 percentage points down on 2019 activity, when 29 percent of firms held such an event. That compares with 56 percent of investors pointing to CMDs as the best way of improving visibility in 2019.
The figures for 2020 show an even greater gap: 71 percent of investors cite CMDs as the best way of improving visibility for small and mid-cap companies, while just 28 percent actually held such an event.
So where have these companies been focusing their efforts? ‘Companies are consistently most likely to say they have made improvements to their corporate website to boost visibility,’ according to the survey findings.
‘There is clearly a disconnect between the vision of small to mid-cap companies on raising awareness with investors and their actual execution,’ Joshua Maxey, chief marketing officer and co-founder of research firm Third Bridge, tells IR Magazine. ‘A dearth of capital markets events epitomizes this gap, although Covid-19 has certainly been a factor.’
Maxey says that both Mifid II and the pandemic have contributed to widening the research gap and resulted in ‘some level of asymmetry in information’, though he adds that this has actually been an opportunity for some investors.
Third Bridge is seeing ‘less appetite to commission research into small to mid-cap companies,’ he notes. At the same time, he adds that the firm is ‘seeing the buy side doing a lot more research in-house and a large uptick in research demand for due diligence on small-to-medium-sized companies.’
Investors more optimistic
The difference between what investors think companies could be doing and what they’re actually doing is not the only opinion gap highlighted by the research. The survey points to ‘an emerging disparity’ between how companies view the public markets and the opinions of investors. It finds that while investors consider the current conditions to be attractive for small and mid-caps, the companies surveyed think the situation is deteriorating.
In fact, almost two thirds (63 percent) of investors consider the UK market to be attractive, compared with less than half (45 percent) of small and mid-cap companies. More than a quarter (26 percent) of companies find the UK markets unattractive.
On top of this, half of investors say the UK market has become more attractive over the last 12 months, a view shared by just 30 percent of companies. Instead, a massive 41 percent of companies feel the market has become less attractive – compared with just 18 percent of investors.
The benefits of being a quoted company
Speaking on a webinar to launch the survey last week, Georgina Brittain, managing director and portfolio manager at JPMorgan Asset Management, described herself as ‘a little bit horrified’ when she saw the findings.
‘I believe the markets are attractive and, clearly, from where I sit as an investor in small and mid-cap companies, it is very, very important that they are,’ she said.
What made the findings especially surprising, Brittain added, was that 2021 was an ‘astonishing’ year for IPOs, ‘particularly in the small-cap arena’. Although she recognized that some of those listings had ‘proven to be disappointing, at least in the short term’, she said that for investors, IPO performance is not the issue: ‘It’s for us to choose where we want to invest and where we think we’re going to make money.’ Instead, she noted the importance of ‘new blood’.
‘Equity markets have been shrinking, largely due to the volume of M&A versus new issues, so it was an absolute delight to see companies coming [to market],’ Brittain said. ‘And frequently it is in the small-cap area where new types of companies or new themes start to come through.’
Acknowledging the problems cited by small and mid-caps in the survey, such as ‘excessive’ regulation and the time demands it puts on companies, Brittain said the number of new listings proved that despite the findings, companies did see the markets as attractive.
She also pointed to the support that already-listed companies got from the market over the course of the pandemic, when she says ‘2020 and the onset of Covid demonstrated clearly that markets were absolutely open for equity raises’.
‘It’s what we should be doing as investors,’ she continued. ‘You believe in these companies, and you understand why the situation is unparalleled so you put your hand in your pocket to ensure their survival. For me, that was one of the best demonstrations ever of the benefits of being a publicly quoted company.’