On Investor Relations magazine's web site, www.IRontheNet.com, you'll find PR Newswire's ProfNet system powering no-holds-barred Q&A between IR officers and advisors. Here are some edited excerpts
Q. With traditional valuation techniques arguably meaningless right now, there seems to be a greater focus on management credibility. What are the implications for IR?
A. Quantitative analysis will always be a major consideration for an investor - whether it is revenue growth, Ebitda, cash flow or other metrics. At the same time, qualitative analysis continues to be important since investors want to know about strategies, market factors and other competitive advantages. Most importantly, they want to assess the strength and depth of the management team that will execute these plans. When economic conditions are favorable, qualitative factors are sometimes less important since there are many choices of where to invest to achieve favorable returns. As conditions deteriorate, investors place a higher value on credibility, consistency and the ability to execute strategies under more difficult conditions.
During the recent boom, new valuations were created to fit companies with 'non-traditional' business models. The pendulum has now swung back towards more traditional valuation techniques given today's difficult economic times. There are many components of valuation. What varies - whether it is among investing styles or in different market conditions - is the emphasis that investors place on those characteristics. In the recent bull market, a premium was placed on growth and the ability to access new markets and technologies. Today, there is a greater emphasis on free cash flow.
Experience shows that well-managed companies outperform even in bad times. As economic conditions have deteriorated, investors are placing a higher premium on the ability of the management team to steer the company through difficult times. But reputation takes time to build and maintaining good lines of communication with investors through good and bad times is part of the mix. - Thomson Financial
Q. As a small company, how best can we ensure that our releases are seen by market-makers and broker/dealers?
A. Small-cap companies frequently travel under the radar and fall prey to bad advice about putting out hypish and 'no news' press releases to try to get noticed. The key, particularly in this market environment, is to concentrate on putting out real news that will resonate with investors.
Small caps are already at a disadvantage because of their size. This can mean that less may actually translate into more, when it comes to distributing releases. Investors are looking for real companies with innovative technology, products and services that are growing and competing effectively in this difficult marketplace. This can be done by focusing on news that will actually interest investors, such as alliances with well-known companies, exceptional financial results or industry awards. - Michael Kempner, president and CEO, MWW Group
Q. I am a student working on an investor relations plan for a client assigned to our IR class. The client's competitors have 15-20 analysts following them while our client, the leader in the industry, only has six. Any creative ways to attract sell-side analysts?
A. If your client is indeed the leader, but has fewer sell-side analysts, that may be because the company is less communicative, or has disappointed the Street in the past. It may simply be that your client's results are poorer too. Your task is straightforward. You must speak with the analysts, and tell them that your client's position in its segment is such that analysis of the competitors will be facilitated by a more complete knowledge of your client. For example, an analyst cannot follow Ford Motor Co authoritatively if he or she does not know General Motors fairly intimately. Many companies in such positions are in highly fragmented industries, so that, although they are the 'leaders', they do not control a commanding market share. If that is the case, then you should offer, on behalf of your client, such industry-wide market research as you can, in order to help the analyst form a more meaningful picture. - Joe Allen, CEO, Allen & Caron
Q. With the current slump in the economy and scandals surrounding several giants, what can we expect from the next wave of annual reports in terms of content and design that might help regain the confidence of analysts and shareholders?
A. The hyperbole of past annual reports rings especially hollow given recent experiences of company misconduct and erosion of shareholder value. In the future, annual reports will include more information, presented in a frank manner and using simple language.
Expect to see less use of footnotes and more use of text and visuals to explain material information. Policies on board independence and integrity will be clearly defined. Compensation and stock option data will not only be included in the 10K and the proxy, but also in the annual report to allow shareholders more opportunity to monitor and align corporate performance with executive remuneration.
New policies of disclosure and accountability will ensure that annual reports should be read from front to back. The best-of-breed companies will exhibit their leadership and initiative in corporate responsibility by giving all of the information that investors need and not just the information that is required by law. - Christine Lumpkins, senior financial writer, Coffin Communications Group
Q. Can you suggest a contingency plan for a large-scale conference call? I need to alleviate management fears that all may not go well.
A. Management may be concerned about handling inappropriate questions. In specific cases, the IRO can arrange a kill phrase with the operator handling the call to allow the CEO or CFO to end an inappropriate line of questioning. By using this phrase at the beginning of the answer, the company can signal the operator to drop the questioner back into listen-only mode (and then hold that particular questioner out of the queue for further questions) without any further disruption to the call. An example of such a phrase would be: 'We're not going to spend a lot of time on this issue today.' - Keith Mabee, president and COO, Dix & Eaton
Q. How can I develop my analyst/fund-manager database in order to expand my mailing list?
A. The fastest way to set up an effective database is to check your industry peer group and determine which institutional followers (buy-side institutions, mutual funds, etc.) hold positions in these companies. See if their investment parameters and portfolio turnover ratios fit your targeted objectives. Beyond that, check on the buy side for institutions or funds whose investment parameters and market-cap requirements are in line with your goals and strategies regardless of any dedicated industry preference.
On the sell side, seek out which analysts are following peer companies and pursue them. Beyond that, check which sell-side analysts have similar interests in terms of investment parameters, regardless of industry. - Dean Dranias, senior IR counsel, Citigate, Chicago
Q. When is it appropriate to respond to chat rooms/message boards?
A. When faced with scurrilous comments or outright falsehoods on internet chat rooms or message boards, there are two rules to keep in mind. The first is to resist the temptation to fight fire with fire; ignore the posting. Most investors realize that rumor mongering comments are the work of disgruntled employees or amateur stock manipulators. You give these people unwarranted credibility when you engage in dialogue with them. Furthermore, any comment a company posts is subject to all disclosure requirements, while your adversary can continue to post falsehoods under the cloak of anonymity.
Secondly, there may, on rare occasions, be instances when a response is necessary. In that case, marshal your facts and prepare a professional, comprehensive statement. Do not reply with an off-the-cuff posting to the same message board; do not allow your antagonist to pick the venue and set the rules. If the situation is serious enough to require a response, reply in the same manner in which the company makes its other significant announcements, such as through a well-crafted press release. Do not leave the door open for your adversary to bait you into continuing the debate. Make it clear that these are the facts, and equally clear that the company does not intend to spend any more time or shareholders' money dealing with lies. Your goal is to present the truth, not engage in an ongoing discussion. - Bob Bregenzer, vice president, Tech Image