- Mega cap, well-known company (three studies in four years)
This study was driven by the CEO who recognized that communications had a direct impact on the company’s valuation and wanted to make changes.
First study – we uncovered poor perceptions of management (both credibility and capability), strategy effectiveness, and confidence in management’s ability to deliver shareholder value in the short term and long term.
Second study – the company showed major progress in all areas with the exception of management credibility. Why? The strategy had been inconsistent over the years and the company had continued to miss targets.
Third study – we found that the company had solidified their strategy but were now waiting for it to generate results in the way of earnings growth (which was two years away)…so management felt that it may not be the time to communicate.
Upon further analysis, the research showed that it was not necessarily earnings growth that would improve investment appeal (although that needed to occur eventually). It showed that there would be value if the investment community had a better way to monitor progress on the strategic initiatives that were established.
The Result – investor relations and management started communicating some of the company’s internal metrics; the investment community could see that progress was being made on R&D efforts and that financial targets were being met. Hitting set targets was the means to address the only remaining perceived weakness. Valuation steadily improved as the investment community got a better handle on the metrics that they could use to measure performance.
- Large-cap, old-economy manufacturer
The IRO was the driver of the research project. He realized that management’s stance towards the investment community was hurting the company’s valuation. Upon initiating the project, the CEO wanted to get at the reasons for why their P/E trailed their investment peers.
Through an in-depth analysis of buy-side investors deemed important to the company, we learned that the reason was both in tactics and in audience.
Going into the study, the CEO was skeptical about his investor audience’s ability to give useful feedback because he believed that the investors did not really understand what it takes to run the business. What we found was that he was right on the money. There was a significant familiarity gap with the company, its management team and the corporate strategy. Furthermore, the key driver of their investment decisions regarding this company was their stable cash flow. Growth initiatives ranked last in importance among their key audience.
The Result – The lack of a premium valuation could clearly be linked to their audience (mostly value players that would not pay a premium for growth) and their lack of proactivity. It was very difficult for investors to pay a premium for success when they were unable to determine what success meant. Action steps were to begin a more proactive program aimed at GARP investors and to “clean up” the message so that the strategy could more clearly be defined. Relative valuation improved as the company began to target the “right” audience. Subsequent studies showed that their audience began to grasp the message more clearly.
- Small-cap, technology company
The company did not feel they were getting credit for dramatically increasing market share in the face of tough competition and a lack of spending initiative from customers. The research proved that the investment community did recognize the efforts made by management, giving them very high marks. The company’s technology and strategy were also very well regarded. The investor communication effort received some of the highest marks we had seen.
The real reason for a lack of interest was that their audience was having great difficulty putting a number on the size of the marketplace (this was an emerging industry). Without an understanding of the market opportunity, it became nearly impossible to gauge how successful our client was (gains in market share are questionable when there is a cloudy idea of the marketplace). The key action step was to incorporate a more robust discussion of the industry and our client’s long-term opportunity in it. In this way, the investor communications team was acting as the sell-side analyst, making it easier for the buy-side to cover the company.
The Result – Buy-side sponsorship improved and the company began to recognize that the information they infused into the marketplace had a profound impact on how the buy-side analyst community built their models. Subsequent studies addressed the question of size of market and it clearly showed that the market opportunity more closely matched the information that the company was providing, hence, less volatility around quarterly results.
|
