Don’t shy away from guidance

The question of whether or not to give guidance can be a tricky one. Given that you can rarely forecast short-term volatility, should you risk disappointing investors – or say nothing? When IR Magazine brought together a panel of experts for a guidance webinar in November, the message was clear: giving guidance is good for your share price.

Neil Stewart, webinar moderator and IR Magazine’s editorial & research director, kicked off the event with a warning to US listeners that they might find some of the discussion ‘scary, and even rather shocking.’

He was talking about a growing trend of super transparency – embodied by the IR team at German energy firm RWE. Panelist Gunhild Grieve, head of RWE’s IR in London, explained that as well as offering guidance on the current year, the firm gives estimates on the year ahead.

But what makes RWE’s policy really stand out is its approach to consensus estimates.‘We ask our sell-side analysts to provide us with their numbers: they have them in their models but [we] also [want them] on a post-restructuring or post-disposal basis,’ said Grieve, adding that all numbers sent in are included. ‘We put a revised consensus on our website with those clean numbers, which are comparable with our guidance.’

Growing levels of transparency might be the trend in Europe, but Regulation FD in the US discourages companies from RWE-style openness. Despite this, Jason Whitaker, application specialist at Bloomberg, maintained that an ‘open line of communication’ remains the best practice – no matter where you are or what industry you’re in.

He added that whatever size your business is, if you can give guidance – even in the form of something as simple as a production target – you should be doing it. ‘The evidence seems to be that the more you give guidance, the better your share price,’ he said.

Chris Bailey, head of global direct investments at Close Brothers Asset Management, agreed, pointing out that when ‘people are saying less and less, guess what? We become less inclined to buy their shares.’

Rather than letting macroeconomic ‘wobbles’ deter you from giving guidance, Bailey noted, companies should offer a guidance range and extend predictions into the medium term. A range of between 5 percent and 10 percent offers the leeway that is lost on a very specific number, he explained, while medium-term forecasts encourage your investors to think beyond each quarter.

‘I appreciate you’ve got to be careful,’ Bailey added. ‘You’ve got to factor in what’s happening in the world, but one good thing about a guidance range – particularly something that talks beyond this year – is that you can factor in and absorb some macroeconomic volatility. And on a quarter-by-quarter basis you can say, It’s been a bit tough this quarter because of X, Y and Z, but we’re still on track. The market gives you credit for that.’

Recording now online
The full recording of the webinar on guidance and earnings estimates in economic uncertainty is online now at www.irmagazine.com/guidancewebinar. Log on and listen in to hear more from:

-Neil Stewart, editorial & research director, IR Magazine
-Chris Bailey, head of global direct investments, Close Brothers Asset Management
-Jason Whitaker, application specialist, Bloomberg
-Gunhild Grieve, head of London IR office, RWE