Challenges facing Irish companies
The Irish equity markets have been in a fragile state in since 2007 when the Irish stock market fell 26 percent. Fortunately, Ireland’s relatively diminutive market makes for a close-knit IR community. On this occasion, however, leading Irish corporates were not gathered in Dublin but in London following IR magazine’s Euro Leaders Think Tank for an Ireland-only roundtable discussion hosted by the magazine and Davy.
Irish companies have faced common challenges: market-cap shrinkage, low analyst coverage and low levels of liquidity on the Irish Stock Exchange. So the first question for David Moss, F&C’s director of European equities, was whether a lack of liquidity would deter him from investing.
‘Liquidity is an issue but it doesn’t always feature in our benchmarks,’ Moss explained. ‘We set very explicit targets for reviewing stocks. If a stock outperforms, we will still review it to check that the investment case still stands. We have definitive sell figures. I think Irish companies are a combination of European and Anglo-Saxon in their approach. There is more understanding of the European way in Ireland than there is in London.’
The fund manager went on to explain differing expectations from investors when it comes to managing spare cash, noting that the dividend is more important to investors in London than in the US and continental Europe.
‘I don’t know why US investors don’t like dividends,’ Moss said. ‘If buybacks are part of a long-term program then maybe it makes sense, but we believe investing in your business should be your first priority, second should be the dividend and buybacks should be last. For us it’s not just about the absolute amount but the long-term path – it’s a very important discipline.’
Distance between the buy side and sell side
The sell side was another topic of conversation. Moss said he and his team have increasingly come to favor expert networks over the sell side. ‘I don’t think the sell side adds any value anymore,’ Moss stated. He aimed most of his antipathy at the bulge-bracket broking firms: ‘There seems to be a complete lack of experience. We like to think we have a better understanding of what drives the business case long term than the sell side.’
Most people agreed that one-on-ones were preferable to investor conferences with general presentations. ‘They are too difficult to keep relevant to the whole audience,’ commented Michael Ryan, head of investor relations at Kerry Group.
Even Paul Burke, head of corporate broking at Davy, agreed. ‘The sell side likes to see presentations for the day because it likes to brand the franchise, but we have concluded that the presentations on stage tend to be generic, which defeats the point, so we stick to one-on-ones and small group meeting,’ he said.
Going it alone without the sell side is beyond the capability of most small IR teams but some cities, such as Boston, do provide issuers with the opportunity to run their own roadshow. ‘There are more and more investors with no broker policies but, generally, having a broker involved makes it easier,’ one IRO noted.
Hitting the road
The next topic of conversation was how often to go on the road, with one IRO saying she was planning to cut the frequency of her company’s investor roadshows. At the same time, investors like Moss are increasingly trying to see firms outside the normal pattern of results presentations. ‘Outside of results, our meetings can focus on the longer term,’ he argued. ‘Siemens does an investor day every quarter but we can’t really justify every trip. Some companies host an investor day every half year – but I’m not sure there is enough to talk about.’
CRH’s head of IR Eimear O’Flynn revealed that her company hosts an investor day once every two years, which seems to work well. ‘A lot of people don’t want to be away for long and firms are very conscious of cost,’ she pointed out. Another IRO complained that his company had recently conducted an investor day, which had good uptake from the sell side but low interest from the buy side.
‘I think there is a permanent shift toward cost-cutting when it comes to corporate travel,’ said Moss. ‘We have to demonstrate to our own investors that they are getting value for money. I’m not a big fan of video conferencing but any way we can get more contact with CEOs, CFOs and IR people is welcome.’
SRI: who to pay attention to?
The last part of the discussion took on socially responsible investment (SRI). Several attendees complained that they were increasingly on the receiving end of SRI questionnaires, and were struggling to discern which ones were worth completing.
‘We are getting requests to see the chairman, they are homing in on the issues and we get questionnaires saying, We estimate you use 50 tn gallons of water. We don’t seriously entertain them because we are not ready to report in this way. We want to start with statements in the annual report,’ commented one attendee.
‘There has been a shift over the last 12 months,’ noted O’Flynn. We are seeing a move toward having an SRI specialist at the meeting, but with the equity investor still leading it.’