We are a small-cap company. How do we get stockbrokers to cover us? DAVID PERRY has the answer.
David Perry answers: In Australia, the availability of equity research falls away significantly outside the top 500 stocks. Any company with a market capitalisation of less than $175 million would be lucky to have one broker consistently covering it.
As there are more than 1800 listed companies, this means the overwhelming proportion will remain unresearched. There are a number of reasons for this, including the connection between company size and broker profits and the increasing cost of producing research.
As a last resort, some companies pay for the services of private research organisations, but this is expensive and is tainted insofar as it is “bought”. The ideal situation is to have at least one committed broker undertaking ongoing research on your company. But how do you achieve this?
Here are 10 tips:
Articulate your vision/strategy and differentiating features clearly
Brokers want to see a clear vision for the future of your company. Part of your vision should be to grow the business to at least $50–100 million or you will have a major problem getting attention. Part of the raison d’etre for an ASX listing is growth and access to capital. Without that chances are your liquidity and broker coverage will remain low and volatile.
Agree on the key messages
Agree on the key messages for the coming months and focus on the positives. If these are not clear, workshop them, and/or get help. Make sure all of your staff are on the same page. The brokers will find it hard to grasp your vision, differences and key messages if they are receiving mixed messages.
Sell your strategy
Be prepared to sell your strategy and points of difference many times to many audiences. There are more than 1800 companies out there and you must sell your story with passion and realism to get noticed.
Appoint and limit the number of spokespersons for the company
Agree on a limited number of spokespersons for the company, for example the CEO and CFO. This ensures a more consistent story and limits the scope for clever analysts and reporters to spot the differences.
Develop a 12 month-plus investor relations and PR strategy
Have a 12 month or more investor relations and PR strategy – a short-term investor relations and media approach is very apparent to an experienced audience. Pumping out numerous media releases without substance can give a poor impression of how the company is run. Remember, it is about consistent communications and building relationships and trust – with investors and the media – and this doesn’t happen overnight.
Don’t be a used car salesman and oversell the gloss. You are communicating to real people. You can admit your mistakes, but most importantly, you must tell the market what you are doing about them.
Don’t over-promise and under-deliver
Understand the expectations of the marketplace. If you over-promise and under-deliver, your credibility will be shot.
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Remember what you told them
Take notes of what you say to brokers and investors and refer back to them before you see them again. You can bet they will have remembered what you said last night and whether it was inflated or not. This hopefully will inject a degree of caution into your forecasts.
You can make it easier at the outset
Make it easier for brokers at the outset by compiling your own profile or “FactNote” and a coherent presentation. You may need to educate them about the industry and competitors. Remember, yours is one of 1800 stories!
Get some feedback
Ask for feedback from brokers and investors. This can be done by talking to friendly brokers or through independent investor relations consultancies. If you are not getting your message through, it may be because you are not communicating it well, frequently enough, or the market doesn’t believe it. Finding out which will help you realign your communications for much greater effectiveness.
David Perry is director of research at Value Enhancement Management, a stakeholder strategy and investor relations advisory firm. Perry has more than 20 years experience in sharemarket advice and research — including 10 years as head of research for stockbroking investment group Austock, and head of capital markets and futures research for ANZ McCaughan.
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Disclaimer: The opinions given are personal opinion of the author only. As all situations are different and subject to different facts, you must seek your own independent advice prior to acting on any opinions written here.