Analysts' sell-side reports can be one of the most poignant indicators you have of how the financial community perceives the worth and health of your company. But more importantly, they are a test of the relationships you develop with the analyst community.
And as much as you can, you should make sure that these documents (hopefully they are carefully honed) cast your company in a correct (positive, or not) light.
During a year, there are hundreds of research reports circulated in the marketplace about publicly held companies. They are targeted at institutional investors who make decisions about whether stock should be bought, held or sold. Small companies may only have several reports written about them during a one-year period but larger companies can come up against as many as 25 during the same stretch.
There is little debate in the investment and IR industries that the power of the sell-side report - penned by experts who sniff out news about companies - has diminished. That change is reportedly because institutional investors have become harder to sway (they don't take the reports as gospel).
But by no means, is that a sign to put these reports low on your priority list.
Sources say research reports are dwindling in number for several reasons: the number of sell-side analysts is on the decline while the number of portfolio managers and institutional investors has increased; and brokerage firms aren't making as much money as they previously did on these reports.
Even though financial analysts' reports might have a soapbox tone, when they land in your hands you're obligated to proceed in two key ways: you should circulate them internally to superiors and clarify with analysts what's wrong, advises Mary Lowengard, a contributing editor with Institutional Investor and editor of NIRI's Investor Relations Quarterly.
"First and foremost, [investors] are relying on accessing statements about companies that are credible and reliable," says Steve Sterrett, treasurer of Simon DeBartolo Group Inc., a real estate investment trust in Indianapolis with 185 retail assets in U.S. "You can be a spin doctor when it comes to politics and PR but you can't be a spin doctor in the IR world. The first rule is to answer honestly."
The Worth of Words
In a Corporate Communications Benchmark 1997 study, which has been released in waves by Edelman Public Relations Worldwide, PR execs placed financial analyst reports the number one (out of 13) measurement method to determine goal achievement and/or quantify corporate communications efforts. And sources say for some companies - those that are followed by only several analysts - sell-side reports can hold significant weight when it comes to gauging IR efforts.
"They are one piece of the puzzle and a very valuable measurement," says Kathy Mattson, VP of IR for Edelman, Chicago. But Mattson is one of many IR execs who point out that because sell-side reports don't have the same impact they did more than a decade ago (institutional investors rely on other tools, such as their own research, to round out their opinions), IR execs still need to view the sell-side report as part of a well-rounded IR program.
Mattson groups the sell-side report in with other necessary tactics for the 1990s: having an IR page on your Web site; shareholder letters; and interviews with reporters. She adds that the latter approaches should share something in common with sell-side reports: they should contain your company's messages.
But to reach that goal, Mattson warns that several ground rules have to be in place, specifically IR professionals have to be given "the freedom by senior managers" to be the gatekeepers and to be privy to how those in the upper tiers of the corporate environment are thinking.
A report that comes out that doesn't line up with the outlook that's been reported (externally) by company execs, and those that are laden with skewed numbers, doesn't only indicate what analysts are foreshadowing; it's also a sign that somewhere your communications efforts have fallen by the wayside. Cultivating these reports can't be left to picking up the phone and trying to control what goes in them. It lies in knowing who's covering your company and maintaining a proactive relationship with each and every analyst.
A Piece of the Pie
It's a given that those in IR will continue to grapple with sell-side reports as the buy side gains more entree and power. But even skeptics recognize their merit and the potential you have to occasionally pluck a good one off the money tree.
Even though Ruder Finn Senior VP of IR Bob Ferris says sell-side reports are only a sliver of how a company is perceived, he agrees that when they're lumped in with other material and efforts - articles, independent research, meetings, message development and cautious optimism - they do provide a sense of the effectiveness of your IR prowess.
"They're important, but what's also important is one-to-one communications with institutional investors and when CFOs and CEOs meet with experts to convince them that the company has enough horses to do what they say it can do.Your No. 1 objective is brokering a base of understanding about your company."
(Simon DeBartolo, 312/240-2848; Mary Lowengard, 212/534-3076; Edelman, 312/240-2848; 212/593-6400)