Measuring investor sentiment after a turbulent year

Companies worldwide are watching their budgets. But market intelligence experts don’t think businesses should abandon investor perception studies, and signs show the companies agree. Indeed, the aftermath of a market decline can be an excellent opportunity to establish a fresh baseline.

‘There have been fewer incoming calls from shareholders, so clients need to go out and proactively talk to investors about their own situation,’ explains Chris Taylor, head of global IR at market intelligence company Ipreo. ‘There is so much noise coming from the market that it’s critical for companies to go out and get investor feedback about their strategy, valuation triggers, perception of management and overall quality of communication.’

Companies conduct perception studies in good times and bad. In good times, they want to continue to build on the momentum; in bad times, they want to understand what’s affecting their stock price the most, according to Robert Nagle, a senior director in Thomson Reuters’ corporate advisory services group and head of its investor perception team.

‘The IR teams continue to allocate money for perception studies, which is a testament to their value,’ he adds. ‘The feedback is a critical tool that is relevant not only to the investor relations group but also to senior management.’

Andrew Kramer, director of IR at Boston, Massachusetts-based Interactive Data, views investor perception studies as valuable tests that measure whether corporate messaging is effective, and perceptions realistic.

He expects to conduct an investor perception study this year as a follow-up to the firm’s 2007 perception audit. ‘Our business to date has performed very well, and I think investors will increasingly want greater insight as to the drivers behind our growth,’ he says. ‘It certainly is a discretionary spending item, but for us it makes fiscal and strategic sense.’

New-found curiosity
Despite the downturn and budget restrictions, Ann Mayhew, head of IR at M:Communications in London, is finding that her European clients are continuing to commission investor perception study research. Mayhew partners with Capital Precision, a capital market intelligence firm, recently acquired – like her own company – by Sage Holdings.

‘Companies are intrigued to see how the financial landscape and investor sentiment now appear, as the dust is thought to have settled after a highly turbulent year,’ she says. ‘We are also being asked more often to present the findings directly to the board, which is an indication that interest in investor sentiment within companies is keener than ever.’

Investor perception studies aren’t as commonly used by UK companies as they could be and should be, according to Richard Davies, managing director of IR research consultancy RD:IR in London. Often, boards simply don’t place value in them. Even when commissioned, Davies says, indications are that, in the current UK market, investor perception studies are not being carried out at the same frequency or to the same depth as they were before the credit crunch.

Now more than ever
This could be a mistake. ‘This is the time when companies should be thinking about their IR more intensely than before as traditional routes of communication and dissemination of the investment proposition are being downscaled,’ Davies explains. ‘Investor perception studies are a wonderful way of finding out not only the fears of current investors, but also the fears of targeted investors and what the market thinks about business.’

In Australia, corporations have been focusing on their direct relationships with institutional investors, according to Adrian Dolin, managing director in the corporate services Asia group at Thomson Reuters. He says most are doing as much as they can to keep the market informed, particularly about any impact on earnings downgrades or asset write-downs.

‘In this market, investors might have a high regard for a company and its management, but the stock still gets punished,’ Dolin says. ‘Perception studies are certainly useful to get an across-the-board view of the market’s sentiment toward a company, particularly if there are concerns about carrying values of assets and likely impact on earnings.’

Does the economy today warrant focusing on new topics for upcoming investor perception studies? Many experts think so. Mayhew, who conducts large-scale studies with Capital Precision on behalf of 30 major European companies, says the current volatile environment has her firm asking more about perception of risk. She’s also asking for buy-side and sell-side views on how excess cash should be used. 

At Rivel Research Group, president Brian Rivel says his firm is focusing much more on metrics – specifically, whether a company can provide greater transparency around financial performance metrics. Investor perception studies include questions such as ‘What financial metrics are you focusing on?’ and ‘What type of metrics would raise the biggest red flag for you if a company fell short?’

Open-door policy
The current state of the economy doesn’t necessarily mean firms should be adding new questions to investor perception studies. Davies says the focus is simply about trying to establish and maintain a good relationship between firms and investors.

‘Companies should not take the view they need to close shop and not talk to the market because they’re concerned about the bad news environment,’ he remarks. ‘Research shows that good investor relations helps buffer downside valuation pressure during bad news periods.’

Investor perception studies allow boards to understand what shareholders think about the current scenario, he continues, and helps form their decision-making about the way they present themselves, both in terms of their communication and their strategy.

Kramer doesn’t necessarily see Interactive Data changing the focus of questions in its upcoming investor perception study, but possibly adapting the process. In his mind, the perception study is a function of several dimensions: size of the survey, number of questions, types of questions.

‘From that perspective, maybe in this environment you look at ways to contain costs by how you structure your questions or by putting some parameters on the sample size,’ Kramer says. ‘You still need it to be big enough to do trends and obtain meaningful insight, but you also have to ask yourself at what point you get the law of diminishing returns.’

Those in the trenches conducting investor perception studies all argue the time has never been better to communicate and develop relationships with investors. As Rivel sums it up: When there is uncertainty, that’s when you need certainty most.’


Excuse me?
Are market intelligence companies hearing any shocking information from investors these days in their investor perception studies?

Thomson Reuters’ perception chief Robert Nagle believes about 80 percent of information gleaned from these studies is a confirmation of what the firm already knows. The other 20 percent of the material, he says, is where it gets really interesting. This feedback has management and IR scratching their heads. ‘Those are the opportunities to further refine a company’s communications and IR program,’ Nagle says.

What surprises Rivel Research Group’s Brian Rivel the most in his work is the number of investors talking about company fundamentals under this ‘black cloud’. The studies he has conducted in the past two months reveal stark clarity about what the company needs to accomplish in order to restore that confidence – namely, very company-specific, focused information, he notes.

‘The knee-jerk reaction is to think all these folks will talk about is that the sky is falling, when in fact they are really calling for greater transparency in this environment,’ Rivel points out. ‘That gives the investment community reassurance that the company is on track with where it’s going.’