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The recent improvement in stock market activity is one sign that investors are putting their capital back to work. CEOs are now hitting the road to close the sale on their company’s stock. However, before you head out, you can greatly improve your chances of success by taking the pulse of what’s on a portfolio manager’s mind. This includes the most compelling aspects of your business, as well as the potential land mines that can derail a conversation quickly.
For this reason, investor perception studies have been very successful in helping chief executives understand current investor sentiment and expectations for future prospects. When markets are down, investors are often reluctant to “pay up” for future performance. This begs the question, “Why is my stock cheap?” We can listen to the bulls and the bears all day long, but it won’t give you insight into your particular situation. You need straight answers from people in the know. High on that list are current shareholders, stock analysts and potential investors.
When executed well, a third-party perception survey can solicit candid feedback to:
• Determine the current level of awareness and support for the company;
• Find out the degree to which your strategy is understood and appreciated;
• Understand what key metrics are used to value your stock today and in the future;
• Measure confidence levels in management’s ability to execute the components of the growth strategy and to meet stated financial goals; and
• Identify the main barriers for people to buy your shares.
What questions should you ask when designing an investor survey? Think back to your last investor conference call. Now, skip over the introductory comments and go to the real conversation—at the end. The Q&A session is where you will find helpful clues for strengthening your next conversations.
You will see a noticeable change in the line of questions once the discussion on earnings models has finished. This is where your typically silent buy- side investors will chime in. This “grilling session” is where you can get real meat for your future conversations.
Despite today’s market climate, investors continue to struggle with understanding the fundamentals of the business, as well as management’s strategy to create long-term shareholder value. Next is a sampling of comments and questions we’ve received from investors covering a variety of clients:
• “I’m confused over different brands, product categories and end markets.”
• “What is your sales visibility? Can you provide more clarity on contract terms?”
• “Can you give me an example of non-core assets that might be sold?”
• “Are you getting new customers, or selling new products to existing customers?”
• “If acquisitions are hard to come by, what are your alternative plans for growth?”
There are many more questions, all of which demonstrate the need to understand your firm’s competitive positioning and what customers are actually paying for, as well as sources and uses cash. Every day, portfolio managers are trying to decide where to invest the dollars at their disposable.
It can be especially discouraging to see your peers move ahead without you, either in absolute market performance or on a relative basis of key valuation metrics. Often, this signifies perceived problems that lie beyond industry fundamentals. Recently, we were asked to find the cause of why a company’s stock was valued below its peers. We solicited direct and candid feedback from current and past shareholders.
The investor perception study revealed several issues, not one of which would have a huge impact. However, together they explained the valuation gap management was seeing. In this case, while investors applauded the company’s past moves on asset restructuring, they were confused regarding capital allocation strategy for new growth, particularly in the non-core segment. Also, better perception studies will help you get answers to what’s not being asked. Offhand comments made in conversation exposed concerns about overall corporate strategy and earnings quality due to perceived “dirty earnings.”
Getting out there and selling your story is great. But, get fresh intelligence before you go. Tailoring your communications beforehand will ensure a much better reception. PRN
CONTACT:
Claire Koeneman is president of MWW Group’s financial Relations Board. She can be reached at [email protected].