Winning investment in a post-MiFID market

03 April 2018

By Steph Osborn

MiFID II is throwing investment research into turmoil, and smaller listed companies are likely to be casualties, with sell-side analyst research focusing on the more profitable coverage of large cap stock (as explained in this previous article).

The good news for IR professionals in these smaller listed companies is that they can beat this visibility trap by taking active control of investor communications, with a new role in identifying and winning over potential investors. That’s also the bad news, as it involves taking on extra tasks when IROs are already under a lot of pressure, especially in firms where IR is handled by just one or two people – or is even a part-time responsibility for a busy finance or marketing person.

“Companies themselves will need to be much more proactive,” Adam Kostyál, head of European listings at Nasdaq Nordic, told the Financial Times. “This will require more investment in investor relations and communications to make themselves visible.”

According to Exane BNP Paribas, 76% of European IR professionals in listed firms with a market cap of €2bn or less expect IR costs to rise due to changes arising from MiFID II. Areas where IROs anticipate increased resource include road shows, investor targeting, creating or sourcing research content, and getting regular market feedback.

Buy-side firms are likely to respond to the decline of sell-side research by approaching small/mid cap corporates directly, seeking information for their own analysts. IROs will need to develop the ability to respond very swiftly to all such requests, and will benefit from building a bank of in-house or company-sponsored research, along with a coherent suite of reports and stories about the company that explore not just financial performance, but also the company’s values and principles.

Businesses that have traditionally paid scant attention to these non-financial indicators, or have regarded such communications as a waste of effort, are swimming against the tide. The UK Corporate Governance Code will shortly require hard evidence of board-level attention to beneficial company culture and diversity; dinosaur companies that treat this as a box-ticking exercise will find themselves being abandoned over time by investors and customers. Smart firms need to understand that a finance-focused annual report and a bunch of press releases no longer ‘does the job’; increasingly, investors are considering the intangible assets of a company – its culture, its approach to modern concerns such as sustainable growth, diversity and inclusion, positive social impact… in essence, the ‘human side’ of the company, its values and behaviours.

So, for example, your company might be deeply committed to reducing its impact on the environment. This campaign could be documented via a single, factual line in the annual report that ‘energy initiatives saved £3m in cost reductions, and achieved a 12% reduction in the company’s carbon emissions’. Or… you could create a set of engaging content assets that showcased your passion for the environment; the story could be told via social media, on the company website or in direct email campaigns, including graphics, photographs, case studies and videos of enthusiastic employees explaining how they brainstormed ways to lower your company’s carbon footprint, the problems they encountered, and the ways they overcame them.

Good communications can move a potential investor from thinking “this could be a satisfactory investment” to “I love what this company is doing, and I really want to be part of its success”. And instead of relying on a single report once a year, you can – and should – be communicating regularly with potential investors and current shareholders.

Eye-catching infographics; product case studies; videos of interviews and ‘explainers’ with executives and team leaders; blogs; thought leadership articles; customer testimonials; all these can be deployed to achieve visibility, and also to build positive investor sentiment for your company. They will also catch the eye of your clients, potential future employees and the business media, boosting market sentiment around your stories.

All this fresh and effective outbound activity will inevitably require a boost in IR resources. The choice for those responsible for IR activities in small and mid cap firms is either adding people to their in-house team – communicators, designers, logisticians, share register specialists, project managers – or partnering with external providers with the skills needed to help you reach out effectively to the investor community. The smaller the current IR team, the more likely it is that outsourcing to expert partners will get your firm up to speed quickly and sustainably.

We can help you with the communications and design aspects. Invicomm are expert corporate communications specialists, and we’ve worked with many listed companies, writing and designing great messages and stories tailored to each company’s budgets and goals. The visibility trap is real, and is likely to start hitting smaller listed firms shortly. Get in touch, and let’s see how we could help you overcome this, and make your business more attractive to investors and to your key stakeholders.

Steph Osborn is a business analyst at Invicomm.

If you’re interested in what Invicomm could do for you, contact Joel Garthwaite at +44 (0)207 205 2586 or garthwaite@invicomm.com