Evolving Your IR Program for the New “Normal”

Written By Victoria Sivrais, Partner

March 26, 2020

Take these 5 Steps to Stay Engaged with Wall Street

As management teams begin to adjust investor engagement to our likely new “normal” that includes a restricted travel environment, complicated by unprecedented uncertainty in the broader macro-economic environment and the first bear market in 11 years, it is imperative to evaluate each aspect of the investor relations strategy. While technically only two weeks into the current bear market, our team has already begun to see a dramatic shift in the focus and interest of investors across market capitalizations and industries. We believe this is an early indication of a longer-term shift in investor sentiment.

Defense Matters More Than Ever

Investors are pivoting from their historical focus on companies’ “offensive” strategy, including top-line growth, margin expansion, and earnings power, which have been the foundational point of investor engagement for the past decade, and are now scrutinizing companies’ “defensive” strategies. The “recession plan,” coupled with a better understanding of liquidity and a company’s ability to withstand a prolonged downturn as a result of COVID-19 are now at the forefront of every investor’s mind. Investors are asking companies of all sizes, industries, and capital structures the same three questions:

1. What is your total liquidity? What is your minimum debt payment due this year, and what are the covenants associated with your debt?

2. What portion of your cost structure is variable cost, and how quickly are you able to flex those costs if necessary?

3. What are your maintenance capital expenditure requirements, and what is your ability to decrease those costs if needed?

Even companies that have been historically viewed as less risky (i.e. those with low leverage, strong cash flow, and less-cyclical end markets, for example) are now subject to more in-depth analysis as the investor mindset shifts from considering if a company is going to outperform its industry to evaluating whether or not a company has a sound strategy in place to manage through a business slowdown.

Your IR Program Must Evolve in Turn

By now, it’s clear that the typical ways you have been engaging with Wall Street aren’t going to stand up during this period of crisis. Departing from those strategies and putting a program in place that works in the current environment requires management teams to take five critical steps:

Step 1: Start to Reframe Your Investor Narrative

All companies know their operating conditions for at least the next 90-to-120 days have changed radically and may continue to change as the current situation unfolds. In today’s environment, guidance or forward-looking information isn’t valued, listened to, or believed by the Street.  However, there are many bedrock parts of your story that continue to be 100 percent valid, including the nature of your customer relationships and contracts, the need for your products, the strength of your balance sheet, and the expertise of your top management team. All of these factors strongly influence your company’s ability to manage risk, and they are exactly what investors need to hear about right now in order to feel confident in your organization’s future.

As an example, Aramark, a food service, facilities, and uniform services provider, has been proactive about clearly communicating its strong financial position to the Street despite operating in an industry that has been hard hit by the pandemic. In this recent financial update posted on the company’s IR site, the company tells what it knows, explains the likely impact of the pandemic on its business in the near-term, then takes the exceptional step of breaking down each end market, and specifically addressing what’s changed and what hasn’t. This level of disclosure and transparency is precisely what the Street needs right now to assess a company’s ability to weather the current storm.

Step 2: Bulk up Your Investor Relations Website

At the moment, virtual communications are the only safe communications. But even when restrictions on social distancing and remote working start to lift, a more digital investor engagement environment will likely remain the new norm. For now, it’ s more important than ever to have your most up-to-date materials easily accessible to investors online.

At a minimum, your investor relations website must include readily available for download:

  • Your most recent quarterly earnings release, presentation, and filing
  • Your most recent investor roadshow presentation
  • A Company 101 document and other ‘ramp’ materials to aid new investors in getting up to speed on your story quickly
  • A dynamic FAQ that you update as frequently as possible with incremental disclosures to investors as your management team continues to better understand the ongoing business and financial impacts of COVID-19

The FAQ may be your most important tool right now to keep investors informed of changes in real time, particularly as many enter their quiet period, and demonstrate your commitment to ongoing transparency. Get in the habit of updating it every time you learn something new.

Step 3: Keep Your Foot on the Gas when it Comes to Engagement and Targeting

There are increasingly steep costs for companies that choose to retreat and decelerate investor outreach in this market. These businesses are perceived to be staying quiet because their story is too tough to tell right now. Above all else, stay proactive your investor engagement efforts.

At the same time, be aware that the balance of investment management is shifting back toward active fundamental investors, or traditional stock-pickers – a group of investors has been progressively spurned in favor of lower-cost passive investment management. As fundamental investors move back into the fold, it’s important that your investor targeting approach is tailored appropriately.

In a recent post on targeting fundamental investors in a bear market, we elaborate on ways to engage this group, including overcommunicating, highlighting recent insider buying, and, of course, going digital to maintain regular communications as more traditional conferences and NDRs are put on hold. As one value-oriented investor recently told us, “We are starting to plan for more-frequent, shorter duration phone calls, or ‘status checks’ with companies.”

In addition, you can gain a faster foothold with these fundamental investors by:

  • Talking first to investors who already know your story well. These could be current investors with room to buy or investors who follow the story closely, but never found the right price point to move in.
  • Using your strong financial position to screen and pre-qualify new stock pickers. If you are one of the lucky companies with a strong balance sheet and solid cash flow, or if you are still able to maintain a dividend, screen and pre-qualify for new stock pickers with a focus on these areas.
  • Leveraging your ESG ratings. As with strong financials, quality ESG communications can get you attention right now. Nearly every large institutional investor has an ESG-integrated or dedicated fund that uses some of these screens to target investments.

Step 4: Adopt Alternative Methods of Communication

As we come out of Q1 earnings, consider sharing this information not only on your IR website via a traditional press release, but also through other communications vehicles that can increase your reach and impact. Virtual NDRs or company-hosted webinars or conference calls are great choices.

Using video, leveraging in-house capabilities if necessary, can help you log some virtual face time with investors even while we are all practicing social distancing.  And utilizing social media platforms allows you to provide quick snapshots of your business and share information with all of your stakeholder groups.

Check out this recent post for more ideas on how to think beyond the press release and expand your virtual communication repertoire to stay in touch with your investors.

Step 5: Don’t Stop Spinning all the Plates

We are all operating under a new norm and much is changing. But some things won’t, including the prevalence of activism and the critical importance of ESG. Even as you focus on highlighting different aspects of your story, embracing new communications vehicles, and targeting traditional stock pickers, it is imperative to keep up with the work you have been doing all along to address your vulnerabilities and promote your strengths.

Specifically, remember that activists may be quarantined just like you. But they continue to work remotely to identify vulnerabilities in companies, and the current state of the world is going to make those weak spots a lot easier to find. Stay vigilant about addressing any weaknesses and be transparent about the steps your company is taking to improve these areas or manage through them during this period of volatility.

Just as important, remain dedicated to your ESG efforts. As mentioned above, companies with strong ESG policies have an advantage right now, indicating that these policies may better position firms to handle the current crisis.  And the need for good ESG policies and communications is not going away. In February, Blackrock asked all of its portfolio companies to report on SASB materiality topics for their industry and to move towards TCFD reporting for the year. State Street is expanding the companies covered by its R factor ratio, which incorporates ESG data from major providers and measures the performance of a company’s business operations and governance as it relates to financially material ESG challenges. Finally, new policies in place for this proxy season increasingly address ESG specifically.

In short, ESG is only growing in importance. As we emerge from the current situation, investors will only be paying more attention to how strengths in this area increase a company’s staying power and value.

Plan on Embracing the New Norm for Some Time

No one knows for sure how long it will take for the world to battle through the current pandemic. But even when we defeat this common enemy, it’s likely that many of the changes taking place right now will remain relevant. By structuring your IR plan around the five pillars described above, your organization will be in the best position to take advantage of the opportunities we see in the future.

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