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May 01, 2020

Small caps ramp up investor and sell-side outreach

Now is the time to over-communicate, say small-cap IROs

Even in the good times, the IR burden falls heavily on smaller companies. Lacking the internal resources or sell-side support of larger firms, they have to work extra hard to get their message across. 

With the outbreak of Covid-19 and subsequent stock market plunge, that challenge has ramped up further. But small caps are responding in a positive fashion, boosting outreach and exploring new ways to connect with the investment community.

‘In times of crisis, the hand-holding certainly matters, and the interaction increases in more cases than not,’ says Peter Seltzberg, managing director at Darrow Associates, an IR agency focused on small and micro-cap companies. ‘And you also have to do a little extra peer analysis to make sure you’re not missing opportunities to communicate.’

Seltzberg says Covid-19 has added new demands to the normal crisis playbook, placing further pressure on stretched IR efforts. ‘We have been forced to become the resident experts in virtual technology and be able to make appropriate recommendations on using it, as well as understand the ever-changing regulatory environment that has implemented changes in disclosure requirements,’ he says.

Research by IR Magazine highlights the lower IR resources at smaller companies. Small caps have on average 1.5 people in the IR team, compared with 2.6 across all companies, according to a recent report

The actual figure for small caps is likely to be lower because the research is based on a survey of IR professionals, so companies without a dedicated IR team are less likely to be represented. 

Getting out there

Hannon Armstrong, the US company that invests in climate-change solutions, saw its share price fall more than 50 percent at the outset of the crisis amid heavy selling pressure on real estate investment trusts, although the stock has since rallied by more than 60 percent. 

‘In response [to the market sell-off], we held at least four investor conference calls, hosted by our sell-side analysts, especially in the period when there was significant pressure on our share price, to give people an update on our Covid-19 response measures and our other measures around liquidity and supporting the growth of the company,’ says Chad Reed, vice president of IR and ESG strategy at the firm. 

‘We’ve actually engaged much more with investors over the last month and a half than we would have in a non-Covid-19 environment. We’ve done one-on-one calls – so many calls – in addition to these larger conference calls that attract somewhere between 30 and 100 investors at a time.’

While all companies are going through similar IR challenges just now, smaller companies may find themselves more caught up in broader market sentiment than larger peers, notes Reed.

‘I feel we’ve had to be more proactive and engage with people because we’re a smaller, newer company, and not as many people understand our story in the first place,’ he says. ‘When there is a huge sell-off, I think lesser-known names are inherently caught up more in the tide than bigger, more well-known names.’

Hannon, which won best overall IR by a small cap at last year’s IR Magazine Awards – US, has used a variety of communication channels to stay visible with the market over the last two months. 

Along with sell-side conference calls and one-on-one meetings, the company has put out a number of press releases, held interviews with industry press and even taken part in a podcast. ‘We used a program called ZenCast that enables the technical team to better record the audio quality,’ notes Reed.

Working with the sell side

Andrew Ballou, vice president of IR at BioSig, the medtech company with a market cap of around $200 mn, agrees that now is the time to increase outreach. 

‘If we think during this time that companies themselves can perform better by overcommunicating with their own employees who are dispersed, something similar can be said of managements overcommunicating with investors,’ he says.

A former member of the buy side and sell side who switched to IR last year, Ballou suggests finding thoughtful ways to engage covering analysts. ‘Maybe propose a topic for a conference call, like an update on a particular region or product, discuss that and then give an update on the overall company and how it’s managing in the current environment,’ he says.

He also suggests getting in contact with non-covering analysts. ‘We’ve also reached out to firms that don’t have research coverage on us, but that are interested in what we’re doing in certain sectors, so we’ve been able to offer them some connectivity with people at our firm,’ he explains. 

‘We believe speaking to us and learning more about elements of our business may have helped those analysts get a better understanding of the competitive landscape in certain sectors they cover.’

Interest in BioSig’s story shot up after its subsidiary, NeuroClear, acquired a license for an antiviral drug that may be useful in the treatment of Covid-19.

During April the company held two public conference calls – the first time it had done so – to update the investment community on the acquisition as well as the core business. ‘Both calls were very well attended and received,’ says Ballou. 

Going virtual 

As with all companies at this time, small caps need to find virtual ways to meet investors. 'We plan to attend some virtual conferences in the next month or two,’ says Reed. ‘We haven’t done video so much as just typical webcasts, where sometimes you can see slides, but [it's] primarily audio.

'Some investors like to do face-to-face [meetings], some don’t, so we’ve had a few of our one-on-one calls that were video WebEx-enabled. That has definitely been a change.'

Starting with the Annual ROTH Conference in March, physical events for small and micro-caps in the US have either been cancelled, postponed or made virtual, says Seltzberg.

‘Travel restrictions, shelter-in-place, stay-at-home and social distancing are here to stay for now and [in-person] conferences and roadshows are not happening at all,’ he says. 

‘Our firm has launched a virtual roadshow offering, and I imagine other IR firms are going to do the same, if they’re not already doing it. The technology for virtual roadshows has existed, but the industry has avoided going there for around five years. Covid-19 may just be the impetus for a permanent change, here, in my view.’