1. Nat ional I nvestor Relat ions I nstitute
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update
The Voice of the In vestor Rel atio ns Pr ofe ssion since 1970
IN VESTOR R ELATIONS
T aking It to t he S tre et
By Deirdre Skolfield, CFA
Y
ou’ve got a gre at Web site, well- scripted c onfer- You n eed to commu nic ate your sto ry to W all Stre et
ence ca lls and a t op-no tch corp orate c ommuni- and the dep leted a nalyst cor ps, es pecially if your c om-
cation program. You’ve worked with y our com- pany is one of the almost two- thirds of the more th an
pa ny’s legal c oun sel to c over all the Reg FD a nd 12 ,000 U .S. pub lic c ompan ies w ith no sell-side cover-
Sarba nes-O xl ey b ases, a nd you ret urn c alls f rom t he age. And y ou need to spe ak to inv estors in t he la nguage
pub lic p romptly. Your c omp any has solid fina ncial f un- they un ders tand. As p art of a new breed of IR profes-
d amen ta ls a nd a com pelling sto ry. B ut tha t’s n ot s ion al s, you m ust he lp inv est ors di ffere ntiate your com-
enough, neces sar ily, to get t he atte ntion of the in vest- p any by selli ng the num bers behind the story.
me nt commu nity.
16 AUGUST 2003 INV ES TOR RELATIO N S upd ate
2. C O RPO RATE
CO M MU N I CAT I ON
A 2002 survey of sell-side analysts and buy-side s tanding a nd fl oa t, share holders’ eq uity, ca sh, long-t erm
inv est ors by Th oms on Fi nancial found t hat the two debt, net working ca pital and di vidend, if app lic ab le.
mo st common mistakes made by comp ani es mark eti ng I nclude the l ast few ye ars’ repo rt ed n umbe rs and a ny
t hems elves to the Str eet w ere “t oo much focus on mar- published guidance on rev enues and ea rnings per sha re.
keting and hype” and “ failure to a ddress sp ecific finan-
A c ompany pr ofile, includi ng cust omer base .
cia ls.” Both buy- a nd sell-side analy sts ranked earnings
and cash flow metrics as the most important measures Dif feren tiato rs from peer c ompanies, such as cus-
of val uat ion. tomer size, product line, ma rket ni che, pr icing strategy,
c ost str ucture, ope ratio nal ef fic iencies, m ana geme nt
T hat means that you, as IRO, need to communicate focu s, etc. If your comp any has a miss ion stat emen t,
c erta in fina nci al m etrics as p art of a c lear and focus ed i nclude it in t his sec tion.
story. The fo llowi ng six- step strate gy provides signifi- A fina ncial s umm ary. Use t he latest earnings
cant ke ys to su cces sfully c ommunic ating your co mpa- re lease on rev enue g row th and op erating pro fits. If
ny’s story in the la nguage analy sts and investors speak: you give rev enue and ear ni ngs guid anc e, incl ude the
1
Understand the analyst’s mind. To begin to dr ivers b ehind this grow th.
speak a new language, find o ut how an aly sts and Market mul tiples (s ee S tep 3 b elo w).
inv est ors ev alu ate comp anies in yo ur s ector. The
va st majo rity of buy- a nd se ll- side a n aly sts a nd po rtf o- A s ummary of y our re cent announc ements.
lio m anagers a re Charte red Financial Analys ts who are A clear st at ement th at the repo rt was w rit ten
ha rd-c oded by rig orous tra ining to delve st raight into by the company, inc luding standard Safe H arbor
the n umbers — multipl es a nd cash flow valuations. d isclaime rs.
3
Retail investo rs m ay react to a press release on a new
Do the math. An e asy appro ach to a meani ng-
c ontr act or produ ct announ ce ment, but W all Stree t
ful equity valuation (and typ ically included in
w ill w ant to und erstand its fi nanci al impact on c ash
research re ports) is the calculation of market
f lows and earni ngs gro wth.
multiples. C ompute your co mpa ny’s stock p rice as a
Learn what buy-side manage rs
mul tip le of earni ng s, bo ok value, sale s, c ash flow and
want by l ooking at ex isting Wall
ent erp rise val ue to EBI TDA, which takes d ebt i nto con-
Street research reports and finan-
sideration. EB IT DA is an imp ort ant b as is f or d ete rmin-
cial mod els on your c ompa ny as
ing the compan y’s a bility to produce pret ax c ash oper-
well as those of your pee rs.
ating pro fit.
Downloada ble re ports are av ail-
Using a spre ad sheet, compare your firm’s data to
abl e, for a fee, from Int ernet sites
your industry peers’ multip les, and update these num-
such as F irst Call, T homs onFN,
bers qu arterly. Include th ese m ark et mu ltipl es and
Ya hoo Fina nce and Multex. Or
Deirdre Skolfield comp ar ati ve fi gu res in your day-to-day comm uni cation
request research on your peers from
w ith the invest ment commu nity as w ell as in your
the ana lys ts w ho cov er yo ur s ector.
r esea rch r epo rt. T hese com parative market mu ltiples
2
Prepare a two-page company research report . are a quick wa y for buy- and s ell-si de a nal ysts to ga uge
If you h a ve no s e ll-si d e c o v e r a g e , th i s s t e p is how your company stacks up against companies they
critical. U sing the info rm at ion gathered in currently follow.
4
Step 1, and your c om peti to rs’ researc h repor ts as a
Make the numbers meaningful. Take your
mod el, p ut to ge th er yo ur o wn br ie f r e po rt. Include
basic report a step furt her and make the multi-
th e st a nd ar d c ompon en ts :
ples and comparative numb ers rel evant to
Basic stock infor mation, including ticker s ymbol, analysts in your i ndustry by shedding light on your c om-
exchange, recent p rice, 52- week ra nge, a verage d aily pa ny-s pecific particu lars. T he broad mar kets w ill always
vol ume, mar ket cap italiz ati on r an ge, di luted sha res out- react to fa ctors in the macro- environment, but company-
IN V ES TOR RELATION S upd ate AUGUST 2003 17
3. COR P OR A T E
COMMUNICATIO N
spe cif ic r ealities a re t he de termi ning f actor in the i nve stme nt Onl ine own ership da tab ase. Ac cess to buy-side c ontact
com munity’s buy and sell de cisions within a sector. dat abases su ch as BigD ough, IRC hannel and Shareholder.
For example, P/E ind icates ear nings g row th pote ntial co m can run as much as $1,000 per mont h, but it o ften is
rel ati ve to toda y’s ear ni ngs. Show what’s dri v ing your money well spe nt to i nc rease your comp any’s ac ce ss to the
company’s earnings gro wth potenti al. A capital mar kets. After you ha ve n ar-
hi gh P/B indi cates a prof itable niche, or rowed t he li st of buy- a nd s ell-si de a na-
high r eturns on e quity rel ative to cost lys ts a nd por tfolio ma nager s, distri bute
of capit al. O ffer insi ght into e ntry/ exit the rep ort to them al ong wi th your st an-
ba rrie rs in your in dustry and pric ing dard in vestor pac ket and inves tor p re-
po w er w ith sup pliers/cu st om ers tha t sen tat ions. Follow up vi gor ously with
may be driv ing your profit m argins. pho ne cal ls, ma king arr an ge men ts to
Let investors k now yo ur competitive m eet with these ana lys ts as appropri ate.
di fferentiators — what your ma nage- The six- step strategy might seem
ment t eam is doing to gr ow earn ings daunting at fir st, esp ecially if you don’t
and mi tigate ri sk t he c ompa ny’s earn- have a b ackground in fin an ce. Pre paring
ings stre am s. a resea rch rep ort, upd ati ng spre ads hee ts
5
and learning more about valuation met-
Ca sh flow is king . In addition
r ics can ta ke a lot of ef fo rt and v alu able
to m ult ip les, W all Street wan ts to talk ab out cash
time. But if you can tell a c ompelling story in the la nguage
flow v alu ation metrics, whi ch give inv est ors dee p-
the inv estment c ommunity und ersta nd s, you c an succ ess ful-
er, more meaningful insight into yo ur c om pany’s intrinsic
ly inc rea se e xpos ure for your c ompany’s stock. And th at’s
va lue and the prese nt va lue of fut ure c ash f low s.
what i t’s really all a bout . IRU
Begin with t he ba sic di vidend disco unt model and
req uir ed rate of return u sing the compan y’s w eig hted aver-
D eirdre Sk olfield, CFA, most rece ntly served as d irector,
age c ost of cap ital. The DDM can be mod ifi ed to the free
inv estor re lat io ns and corpor ate co mm uni catio ns f or
cash flow approa ch to e quity val uation. (Free cash flow
I nte liDa ta T echnol ogies. She can be reached at
is a po pular to ol used by the inv estme nt commun ity to
deirdre@localforce.com.
d etermine a c ompa ny’s relative value. This metric is a
s tra igh tforward c alcul ation of cash f low from o per ati ons,
minus capital expenditures and dividends.) Investors are
well aware t hat e ven though free ca sh flow is calcu lat ed
usi ng n um bers from the pa st, it tends to have a strong
relati onship to fut ure earni ngs. Include this critical inf or-
mation in your com municat ion wi th the invest ment com-
mu nit y, as we ll as in your research report, along w ith the
m ark et mult ipl es.
If you don’t w ant to reinvent the w heel, put the data
fr om your c ompany’s SEC fi lings into a s preadsh eet usi ng
t he stand ard formu las f rom e xis ting ana lyst rep or ts, since
they are already stre amlined to target the i nvestors in
your sp ac e.
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Reaching the Stre et. Now that you’ve got a report
w ritten in t he lang uage an al ysts und ers tan d, it’s
t ime to do so me ta rgeti ng. Sell-sid e analysts’
names and con tact inf orm at ion are often list ed on peer
c ompany Web si tes, comme rcial databases or the N asdaq
18 AUGUST 2003 INV ES TOR RELATIO N S upd ate