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Getting started in investor relations

Suppose for a moment that you've been working happily in, say, the corporate strategy or marketing department of a $10 billion revenue company and, one day, the recently appointed Chief Executive alights on you as the person to head up a new approach to investor relations. After all, you know the company inside out, you're good with numbers and you've got a methodical approach to life. The last person in the job was well connected and knew his way around the market, but did it all by feel and touch and there has never been any IR strategy to speak of. Disclosure was kept to a legal minimum and the former CEO never dedicated much time to IR.

David Yates


The first thing you learn as the new Head of Investor Relations (IRO) is that the total global investment pot is estimated to be around $90 trillion (Source: International Financial Services London), managed by some 25,000 investment firms around the world. The numbers are big and, as you agree to take on the job, you sense there must be a better way to target the investor market than the company has employed to date.

Where to begin?


David Yates,
Director of FinanceTalking Ltd

First, you identify your current shareholder base - a mixture of investors who have mostly held the stock since your company's IPO. You also dig into your predecessor's contact list. You find that contact with investors on the buy-side has been sporadic at best and that questions from the sell-side have been answered on an ad hoc basis. So no relationships to speak of. You set to work researching current views of your company and the needs of the investor community.

Yield, value or growth?

The next question our new Head of Investor Relations should be asking himself is "What is our company's story?" Is it a value story (share price too low and not reflecting full value), a yield story (solid payer of dividends), or growth story (for example, new products or technologies coming out of the R&D department or new overseas markets to exploit)?

This is crucial, because each investor will be specifically targeting his fund accordingly, and there's no point trying to sell a non-dividend paying growth story to a yield investor and vice versa. And often, an incoming CEO will try and change a company's strategic direction; he knows that the market will pay more for growth and he wants a higher multiple for his shares. This will present the first major challenge for our IR head, as the CEO prepares to announce that he intends to cut the dividend, sell underperforming businesses and focus on growth.

Our IR head analyses the current shareholder base and identifies that he needs to manage the exit of existing yield investors from the stock. He realises he'll need to target new growth investors fast to absorb the extra supply of stock.

Peer group analysis

A few months later, with the strategy set and the growth story beginning to emerge, the methodical IRO researches what he calls his "aspirational peer group" - the group of companies with which he'd like his own to be compared (and which are much more highly valued by the market, because of their growth prospects). He reviews their share ownership for an insight into the type of investors who like growth and who invest in the sector - and adds likely candidates to his target list.

Building Relationships with the Sell-Side

Our IRO knows that if he can persuade the sell-side analysts to support his case, his message will reach the buy-side more quickly and effectively - and with third party endorsement. He identifies the most influential sell-side analysts and starts work on persuading them to take up coverage, offering them lots of help with market statistics and how best to build their model.


His research shows that disclosure has been minimal – and that investors and analysts interpret this as reluctance to communicate as a sign that there is something to hide. Trust is missing. He persuades the new management team to benchmark against the best in the sector, which they readily accept.

Home or away?

One of the first things our IRO will have discovered in his research is that approximately half of the world's $90 trillion investment pot is managed out of the United States. And he is also likely to have discovered that the predominance of the funds they manage are growth funds and that they are significant holders of the global peer group to which he aspires.

Under 10 per cent of his company's shares are held by US investors but he knows that he is going to have to increase this significantly to something between 20 and 30 per cent (more than this and he knows he may run into a "flowback" problem where the shares are sold by foreign buyers in difficult times and they return to their home market). He settles on 25 per cent as a decent target and notes that his aspirational peer group each have around this level.

Such a strategy will demand a great deal of his senior management team's time. US investors are not easy to win over, and once won, are demanding and need substantial time to service. They are also hard to reach - the US is a large place and the money is managed from locations on both coasts as well as in the mid-West. However, the weight of money in the US is such that it's going to have to be a core part of his IR strategy. He also notes the high proportion of money being managed in centres such as London and Switzerland, as well as the size of the sovereign funds in China, Singapore and the Middle East. He's knows he's going to have to persuade his CEO and CFO to spend a lot of their time on a plane and he starts to plan the post-results roadshows accordingly.


The final question for our IRO is how he gets the messages out to a wider audience. All the media work to date has been reactive to journalists' questions on the day of results, but he knows that the media could also form the link between the company and a much wider audience. So he starts building up a detailed contact list of the journalists who cover his sector and write on the aspirational peer group and he then makes a note to arrange a lunch programme for his management team.

He has also read several articles in the newspapers recently about regulators clamping down on companies breaching the rules which govern the disclosure of information and he makes another note about booking a training programme for his management team on regulations and corporate governance.

Three years on

Nothing is achieved overnight in IR. It's a long, laborious task that is, as we have seen, extremely consumptive of senior management time. So why do it and what's the end game?

In essence, a targeted IR campaign will bring the right type of investor to your company story, investors who are prepared to invest for the long term and see the story fulfilled. Bringing such investors on board naturally brings support for management's strategy and thus support for the share price as the growth story plays out and more investors buy in.

Three years on, a number of the aspirational group of sell-side analysts have commenced coverage of the stock, the spread of US investors has grown to 25 per cent and the share price has doubled. The right person has been chosen to lead the IR strategy and the methodical approach has paid off.



2008 (с) IR magazine Russia & CIS, info@ir-russia.ru