Only one non-European company currently follows the practice
It’s common for IR teams to track internally the sell-side consensus. It’s much rarer, however, for companies to publish their own findings. That practice is almost entirely confined to Europe, where a growing number of companies are publishing in-house consensus either via email or on the IR website.
So could the practice spread beyond Europe? IROs from outside the region see risks in following Europe’s lead, but also benefits. ‘We don’t go that far and I’ll tell you why,’ says Janet Weiss, vice president of IR at Canadian Pacific Railway. ‘Issuing your own consensus opens up the potential for bias: who do you include, who do you exclude – and why?’
The primary role of investor relations is to convey information about the company, not about the market, adds Weiss. She notes, however, that it is a ‘tempting path, as you’re keeping track of consensus anyway, and it is arguably less effort than continually tracking – and working with – third-party consensus providers to update information.’
European companies that publish their own consensus often point to the inaccuracy of the numbers being put out in the market by third-party data providers like Thomson Reuters and Bloomberg. Some commentators also say internal consensus numbers constitute important market data that should be made openly available to all investors.
Last year John Dawson, head of IR at National Grid and chairman of the UK’s IR Society, estimated that 20 percent-30 percent of FTSE 100 companies now produce and publish their own consensus; many continental issuers do the same.
A typical example is Autoliv, the Stockholm, Sweden-based supplier to the automotive industry, which lists consensus figures on its corporate site for the next four quarters and annually up to 2015.
‘When you look at Capital IQ, Bloomberg or whoever, everyone has different numbers, and we were getting very frustrated with that,’ says Ray Pekar, director of IR and business development at Autoliv. ‘We think the right thing to do is provide the market with the information we have and be very transparent, as we are with every other part of our business.’
Beyond Europe
IR Magazine went in search of companies beyond the UK and continental Europe that publish internal consensus, but could come up with only one example: the Brazilian dental firm OdontoPrev.
‘This is a company that has quadrupled in size over the last five years, so that’s why we pay so much attention to our expectations and make it transparent,’ says José Roberto Pacheco, director of IR. ‘But I have never seen a similar exercise at another Latin American company.’
While other Brazilian firms are aware of how OdontoPrev handles consensus internally, none has yet shown interest in following suit, according to Pacheco. ‘I have talked about this with many different companies from different sectors but, to be honest not one has asked why we do it,’ he says.
US companies would have trouble following Europe’s lead, given the strict regulatory environment covering the relationship between issuers and sell-side analysts in the country.
Typically, IR websites only go as far as publishing a list of analysts following the company and make sure they include everyone to avoid any possible accusation of bias. The inclusion of company-developed consensus estimates would involve a company sticking its neck out in a way corporate counsel don’t tend to sanction.
‘The big challenge for US companies in publishing their internal compilation of estimates is that practice can be perceived as an endorsement of the estimates themselves,’ says David Collins, founder and managing director of Catalyst Global, the New York-based capital markets communication consultancy.
‘They become accountable for the estimates, which become a form of guidance. It would certainly be helpful for the SEC to provide some level of rule making and legal cover for companies to make analyst estimates and/or research available on their websites on a ‘not endorsed, for information only’ basis.’
Carol Stubblefield, a partner at law firm Baker & McKenzie, has not come across a US company publishing its own consensus. ‘If a US company wants to do what’s happening in Europe and include an average, the company would need to carefully look at its own individual circumstances to weigh potential risks and benefits,’ she notes. ‘If done, it would need to be done very objectively, using all analysts’ forecasts, with very clear-cut disclaimers.
‘We have seen trends arrive from Europe where there are potential securities law issues and risks – for example, CSR reports, which have been around for companies in Europe for quite some time and have since moved into the US.’
Stubblefield adds, however, that ‘when it comes to changing practices relating to earnings guidance, I would expect to see companies exercise caution.’
No takeoff in North America
For now, that caution looks set to dampen any adoption of this European practice in North America. The chance of it being picked up in other markets is more likely, especially in Brazil where OdontoPrev has made that all-important first move. What might push more firms to publish their own consensus is the argument that it improves transparency and fairness for all investors.
‘What is unfortunate about the current state of information provision is that the average investor does not have equal access to the analyst estimates and commentary that play an active role in expectations, valuations and trading activity,’ explains Collins.
‘The reports institutions use to guide their investment decisions (to some degree) and which set perception benchmarks and valuation metrics are neither broadly nor fairly accessible to all investors: specifically, they’re not available to retail investors and even many institutional investors that don’t have a business relationship with covering firms.’
While Weiss plans to continue working with the data companies to make their consensus figures as accurate as possible, she is keeping an open mind.
‘Maybe if I had a larger retail base, I might consider doing something like that, because they wouldn’t have the same access to other sources; they wouldn’t have a Bloomberg terminal sitting on their kitchen table,’ she says. ‘I’m going to reflect on it.’
The Outlier OdontoPrev – the only company IR Magazine could find outside of Europe that publishes its own consensus estimates – began the practice a couple of years ago to provide investors with a long-term view of expectations, says director of IR José Roberto Pacheco.‘We wrote down the major metrics and asked the sell side to confirm that it was happy with the list,’ he says. ‘We then created a specific page on the investor relations website where people can check the expectations for – for example – revenues and profitability for the next five years. This makes a lot of sense for when we are targeting new shareholders as they can get a view on the future expectations of the sell side.’ Along with giving annual estimates for the next five years, the $2.5 bn market cap dental company also provides consensus figures for the upcoming quarter, which are promoted by a pop-up box on the IR site as results day approaches (see above). |
