Presentation on theme: "NEW CHALLENGES FOR IR? NIRI Atlanta 15 February 2008 Jeff Shacket, Vice President, Corporate Advisory Services Jared Wasserman, Senior Associate, Corporate."— Presentation transcript:
NEW CHALLENGES FOR IR? NIRI Atlanta 15 February 2008 Jeff Shacket, Vice President, Corporate Advisory Services Jared Wasserman, Senior Associate, Corporate Advisory Services
Agenda Setting the stage: 2007 performance and 2008 outlook How are recent developments impacting IR? Explain: craft a calming response Educate: provide context, perspective and insight Act: (re)define your objectives and (re)tell your story Bigger questions
2 The market is more volatile … for valid reasons Market volatility in 2007 and early 2008 has reflected a combination of macroeconomic issues, corporate financial performance, and changes in investor sentiment … as always … but the balance between them has shifted Legitimate macroeconomic concerns Slower US GDP growth US trade and budgetary deficits Presidential election cycle Fluctuating foreign exchange rates Inflationary pressure from energy, raw materials, and food Credit crunch
3 Expectations and actual company results are falling 3Q07 S&P 500 growth: (4.4%) 4Q07 growth rate: (20.2%), or the lowest since Q4 2001 (21.5%) 1Q08 estimates have dropped from +10.6% on October 1st to +0.9% last week 4Q07 results show slight uptick in rate (26%) and size of ‘misses’ (11%) but [a] rate is generally in line with historical ratios and [b] big ‘misses’ are concentrated in Financials Still a wide range of 1Q08 forecasts: Energy +25%, Financials (21%)
4 The buy-side is growing more complex Hedge funds have more assets and trade more than ever before; indeed, they now represent half of sell-side commissions More investors are employing quantitative strategies to generate ‘alpha’ Foreign investors (including sovereign wealth funds), activists, and private equity are growing in number and strength However, ‘plain vanilla’ institutions still control 10X the assets held by hedge funds
5 2008: half-empty or half full? “The recent market volatility has made me question my investment approach. A lot of stocks have gone down a lot and it hurts. Do you double down or reduce risk? I have those thoughts. I start to ask myself what I am missing when the stocks are down meaningfully. There are opportunities forming. When there is volatility you find opportunities to buy and sell things.” – Sector Specific Investor The current sources of uncertainty are unlikely to be resolved this year Whether the market continues to slide lower or finds a bottom, expect continued volatility
6 All of this makes IR more difficult … and more important Volatility = uncertainty, uncertainty = confusion, confusion = complaints Investors likely to focus on the short-term and wait for the long-term “Fast money” and algorithms create “noise” Headlines more likely to drown out the company story Sector and market performance can outweigh company performance Are growth (risk) premiums and valuations shrinking? Harder to fight for mindshare More minds to fight for, more distractions to fight against
7 So what can IR do? Today? Explain Search for the source Tomorrow? Educate Provide context, perspective, and insight Next week? Act (Re)define your objectives and (re)tell your story
8 Crafting a calming response News Earnings M&A Regulatory Industry developments Estimates and ratings Macroeconomics Trading dynamics Volume Technical indicators Options activity Short interest Buzz Specialists Sell-side Traders Blogs / internet ? Historically, analyst up / downgrades, news and simple trading dynamics such as volume were main sources of stock movement Lately the source with the answer tends to be “buzz” Trading strategies are becoming more complex, as are the trading dynamics Sometimes, like with Societe Generale, the answer isn’t known for several days
9 Take a step back Your CEO wants to know what’s going on Shift the focus to longer-term issues
10 Take a bigger step back Your CEO wants to know what’s going on Shift the focus to longer-term issues What’s really happening with your firm? The sector? The broader market? A recent example …
11 Don’t hide … (re)tell your story Current shareholders Reassure the believers … can they buy more? Reconvince the doubters … close any disconnects Respect the different disciplines … sometimes the chart, model, or mandate says ‘sell’ Sell-side analysts Prospects Accept immediate sources of support? Revisit those recent targets Plant seeds with future top holders
12 Bigger questions are emerging What is the best use of our cash? Reinvest, issue dividend, acquire, repurchase shares What does the investment community think about our company and our stock? Management, strategy, sector outlook, valuation, operations, communications Are we (IR, senior management, and the Board) focused on the right things? Benchmarks, objectives, metrics, and strategy vis-a-vis Wall Street
13 DIVERSIFY SHAREHOLDER BASE Top-down Top-down Geographically Geographically Hedge funds /activist investors Hedge funds /activist investors Diversifying base smoothes risk; creates opportunities Diversifying base smoothes risk; creates opportunities MEET & MANAGE INVESTORS XXX roadshows per year XXX roadshows per year CEO & CFO should each make XXX trips CEO & CFO should each make XXX trips Involve operating managers if appropriate Involve operating managers if appropriate Leverage sell-side for logistics Leverage sell-side for logistics Sell-side conferences are not a substitute Sell-side conferences are not a substitute DEFINE, SEGMENT & TARGET Seize control of your investment profile Seize control of your investment profile Determine competitors for capital Determine competitors for capital Define your target market Define your target market Determine existing shareholder alignment Determine existing shareholder alignment Isolate compatible portfolios Isolate compatible portfolios TRACK, EVALUATE & ADAPT Develop a scorecard for each investor Develop a scorecard for each investor Track near- and long-term buying/selling Track near- and long-term buying/selling Measure ownership weightings/preferences Measure ownership weightings/preferences Consistently assess strength of audience Consistently assess strength of audience Adapt strategy as necessary Adapt strategy as necessary Does your company have a strategic plan for IR?
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