Should you discourage analysts from covering your company?

IR teams at larger companies or in high-growth industries often struggle with a large sell-side following. When there are 30+ analysts writing about your company, many are not adding new insight – but a large proportion still want management and IR time.

That poses the question: should IR teams ever discourage equity analysts from initiating or continuing coverage? It’s a question we asked in our forthcoming research report, ‘How to manage your sell-side coverage’, and the results show it is not a common practice. 

Globally, only a small proportion of respondents (7 percent) say they have actively discouraged an analyst from covering their company. While there is not a huge amount of regional variation in the results, around one in 10 North American respondents (11 percent) say they have done this, compared with just 4 percent for both European and Asia-Pacific respondents.

Breaking the results done by market cap shows little difference in response – a surprising finding given that larger companies are much more likely to have a problem with excessive analyst numbers.

In the comments from survey respondents, themes emerge about why companies might choose to push back against an analyst following the company. The most common issue is resources. ‘It’s difficult to manage in terms of time, message and corporate access,’ says one IRO, ‘so I am very honest with analysts prior to launching coverage that they will receive little corporate access.’

A second theme is the perceived quality of the analyst or reason for covering. One IRO describes an analyst ‘who clearly was following us in name only… mainly to be able to be on CNBC if it were to call.’

A third consistently cited reason for discouraging coverage relates to the lack of influence or value the analyst or his/her firm would bring. One IRO describes a situation on a deal syndicate where there was ‘marginal incremental banking, trading or investor audience to be gained.’

The report is based on a survey of 685 IROs and will soon be made available to professional subscribers to IRmagazine.com. Click here to find out more about IR Magazine’s research reports.