March 4, 2020
Emerging markets have until recently served as a worthy diversifier for investors seeking an alternative to stuttering growth and low yields in developed markets. They are by definition more volatile than more established markets and are too often subject to the ebbs and flows in sentiment driven by media headlines. This volatility is magnified when viewed against the backdrop of growing global macroeconomic risks and rapidly changing economic signals from around the world, creating a daunting set of investment challenges for even the most seasoned professionals.
Our country has a universe of great publicly traded companies with world-class management teams. Our credit rating, now with a negative outlook, has been scrutinised by global rating agencies and political instability has added to market turbulence. The operating environment remains challenging characterised by tough trading conditions in many sectors within the economy while large-scale retrenchments in many industries has heightened job insecurity. Rand volatility and the operational and financial crisis at Eskom are also well-recognised challenges.
Investor relations is fundamental in helping companies deal with this volatility. Done well, it is the vehicle that provides the market narrative that allows local companies to become cornerstone investments in many emerging market portfolios.
Below are some tips for investor relations success:
Remain consistent: Despite the incessant ‘noise’ around political and economic change or upheaval, consistent engagement with existing shareholders and debtholders, and also potential investors and sell-side analysts, is key to building trust and ensuring that the investment proposition is communicated adequately and properly understood. A good crisis is a terrible thing to waste. It inevitably means that you have investors’ attention – regardless of the reason – and so it is an opportunity to tell your story.
Stay focused: Management teams are, for the most part, highly regarded for expertly navigating a myriad challenge and delivering superior returns amidst the macroeconomic and political uncertainty. Staying focused on the business and the elements of the environment that can be influenced – and communicating that focus clearly to investors — is key to maintaining and enhancing credibility.
Contextualise the noise: Be sure to have a considered view on topical media coverage (on either the company, the industry or the country). Ensure that the company’s positions on topical issues are discussed and agreed upon. Should an industrywide stance be required, work with peer companies to thrash out an industry message and agree on a unified communication approach through a central industry body where possible. This consistency in communication is imperative to ensuring that value-destructive uncertainty among investors is minimised.
Provide access to management: Providing investors with consistent access to C-suite executives is key to burnishing the company’s image and ensuring its prospects are not diluted by any prevailing negative sentiment. In addition, access to operational management highlights critically important bench strength and confidence that the business remains on track despite exogenous challenges. Strong Investor Relations Officers with deep sector and company knowledge are critical in ensuring the strategic message and investment case are properly communicated consistently, even outside of C-Suite investor marketing set pieces. They are often the face of the company and must be an efficient, reliable and well-respected point of contact.
Balance the narrative: South Africa has led the way in terms of disclosure, particularly with respect to King IV) and the International Integrated Reporting Framework, which focuses on how a company creates value through market cycles. Although the concept of a triple bottom line is not new, integrated reporting has expanded the concept to embrace the changes to widely held notion of value creation, and the impact of a company’s commercial operations on the broader society and environment. This integrated approach has increased transparency and has helped investors focus beyond the macro uncertainty.
Embrace technology: Most companies have successfully embraced technology including video, teleconferencing, interactive platforms and ‘apps’. The initial use of technology was originally prompted by our relatively remote location and the resultant need to effectively reach offshore investors, but companies have cleverly leveraged technology to align with best practice in shareholder communication. They continue to embrace the digital age by aligning their investor relations programmes with the latest trends in how investors consume information, using a range of media, whilst reducing costs.
Target smartly: South African companies’ share registers are increasingly dominated by offshore shareholders who recognise excellent businesses that present strong prospects and good value relative to internationally domiciled peers. This broader reach of investor marketing is a product of consistent application of global targeting strategies that ensure non-deal roadshows are scientifically designed and executed. Great effort, along with the latest products, are used to good effect to ensure the right cities are visited, appropriate pools of capital identified, fund mandates understood, and peer holdings ascertained. This ensures maximum impact from expensive and time-consuming marketing activity. Remaining abreast of global conference schedules and building relationships with a diverse group of investment banks also aides this global outreach programme.
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