Seat PG's CEO Luca Majocchi talks about taking over the directorship in 2003 after a tough few years for the company, and dealing with a credibility crisis
Managing IR efforts at Seat PG hasn’t been plain sailing. In the space of just five years the company was sold three times, culminating in 2003 when private equity bought a controlling stake from Telecom Italia. The year also marked the arrival of Luca Majocchi as company CEO.
‘When I arrived there were unsustainable revenues with significant credit issues,’ Majocchi recalls. ‘The company had missed its targets several times, disappointing the market, and its relationship with investors was poor. Short-term investors don’t like companies missing targets – they want reliability.’
Seat’s turbulent situation dates back to the dotcom crash, when the group was valued as an internet firm rather than a directories company. ‘This forced the short-term growth of the turnover,’ Majocchi explains. Between 1997 and 2001, Seat’s stock price increased from less than €1 a share to more than €6, then crashed back to €1 again post-internet bubble. ‘All this created enormous stress in the company, so it had to be rebuilt from scratch when it was bought by private equity,’ Majocchi adds. Despite market uncertainties, however, he is finding private equity a refreshing addition to the shareholder base. ‘The beauty of private equity is that it is a long-term investor, and willing to follow the company,’ he explains.
The remaining 49 percent of the company, still listed on the Borsa Italiana, is proving less straightforward. Majocchi splits these investors into two broad categories: ‘Firstly, there are the long-term investors with significant stakes of 3 percent to 5 percent, and they see the growth potential of the company post-restructuring.’ The other type of shareholders he describes as event-driven investors. ‘These are the ones creating volatility in the stock,’ Majocchi adds. In the first part of 2007, for example, Seat’s stock went up quite significantly after speculation that private equity would sell. When the sale was no longer an option, the stock price crashed as there was no other event in the short term.
Credibility crisis
Majocchi is all too aware that the company’s depressed stock price is down to a lack of investor confidence. And while he realizes restoring investor confidence is not going to happen overnight, he remains optimistic. ‘I think we are at the peak of this credibility crisis,’ he says, ‘but we’re going to have to achieve our targets for several quarters before we see confidence returning.’
A recent revival of analyst confidence in the directories sector should help Seat’s reputation. ‘A couple of years ago analysts were very negative about directories because of internet heavyweights like Google, Yahoo! and Microsoft,’ comments Majocchi. ‘Now the financial community is split between those who feel directories are likely to be leaders in local search and those who continue to believe internet sources are the way forward. The key lesson from this is for directory businesses to have an active internet strategy.’
Yet analyst recognition doesn’t always suffice. As Majocchi admits, directories form part of a niche sector and the individual companies are fairly small. ‘It’s difficult to make investors understand the sector and there is only a small pool of analysts focused on directories, who don’t find it easy, either,’ he notes.
To counter this lack of awareness, Seat’s IR department has been busy teaching investors about the complexities of the business and how it operates in 12-month cycles. ‘It does this via detailed results presentations and annual investor days that give updates on business fundamentals and the competitive landscape,’ says Majocchi. ‘I devote significant time to IR and take part in our quarterly forward presentations, which we do as a video conference. I also give at least one or two physical presentations, hold one-to-ones and give information at investor conferences hosted by investment banks.’
Fortunately for Majocchi, the majority of the company rests in the hands of stable investors who are happy to wait until calmer times. ‘They trust in the company, and they believe it has a good future,’ he concludes.
