Summary of the Program at the Cincinnati NIRI Chapter Meeting on March 18, 2011
How the Buy-Side Makes Decisions and Measuring IR Effectiveness
The Cincinnati Tri-State Chapter of NIRI held its fifth meeting of the season on March 18, 2011. Brian Rivel, President of Rivel Research Group, shared some of his firm’s extensive research based on hundreds of interviews throughout the investment community in recent years. His presentation included an engaging discussion, including interesting analogies, with meeting participants of various points. Many of those points are summarized below.
Investor Relations (IR) effect on stock valuation:
- 79% of buy-side investors indicate they believe good IR affects a company’s valuation
- Good IR can result in a valuation premium of 10% while bad IR can cause a discount of almost 20%
The most important drivers of investment decisions in 2010 included intangibles in addition to quantitative items:
- Effective business strategy
- Strong balance sheet, reliable cash flow, sustainable margins
- Management credibility
- Attractive EPS growth
Components of management credibility were ranked based on response rates:
- Meeting/exceeding goals articulated
- Being honest/forthright/open
- Acting in the best interest of shareholders
- Communicating a consistent story
- Knowing the sector/business
Superb IR components include transparency marked by clear and insightful explanations, appropriate detail, candidness, plus simplicity and consistency of messages. Superb IR factors include: transparency, access top management, good disclosure, and knowledgeable/responsive IR staff able to provide strategic clarity.
IR is best measured by determining if investors heard your message, whether the right audience was reached, and whether enough transparency was provided. IRO's should formally monitor feedback and analyst reports to measure IR success. CEO's also wanted to hear this feedback, while they also indicate stock valuation plus extent or quality of analyst coverage are also important indicators. CEO's say the most important thing IRO’s can do is to sharpen their understanding of the company/strategy in addition to communication skills to "tell the story".