Life After Listing: Building Confidence In The Aftermarket
Launching an IPO is an exciting time for a company and after months of auditing, due diligence and investor roadshows, a business is suddenly put in the spotlight and required to meet regulatory requirements and, no less importantly, communicate effectively to the various audiences that constitute the investment market. Although some management teams new to Plc life might find this daunting, this is a period of positive change and with best practice and the right approach in place a company will be in a stronger position to reap the benefits of being publicly quoted.
Companies which choose to become quoted on a stock exchange are almost always successful businesses that have enjoyed a track record of growth for years, if not decades. A listing can enhance a company’s reputation in its local market place, attract new business and improve relationships with customers and suppliers, as well as provide access to funding. However, from the investment community’s perspective, a newly quoted business is an unproven entity. A company should therefore focus on demonstrating that it is delivering on the objectives set out at the time of the IPO, thereby supporting the aftermarket, building confidence with existing investors, and attracting future investors. In this article, I will focus on some of the core elements a newly quoted company should keep in mind for a successful life after listing.
It is important to establish a forward timetable of
events for a Plc. The key corporate dates and
events should generally include:
- Audits and audit committee meetings
- Remuneration committee meetings
- Board meetings
- Interim and final results
- Trading statements
- Annual General Meetings (and Notices thereof)
- Dividend payments dates (if applicable)
- Publication and distribution of the Annual Report
By planning ahead and establishing discipline around the governance of shareholder interaction and reporting, a business and its advisers will have objectives to work towards and this will form the foundation of building aftermarket support.
The importance of communication
News flow is a company’s main communication tool and there are regulatory requirements in respect of publishing results and other price-sensitive information. Importantly, it is a platform from which a business conveys its equity story. Generally, a mix of operational and financial announcements is advised in order to update the market on progress and demonstrate the company’s ability to deliver. The content of such announcements must be carefully considered and a company will need to assess the impact of each announcement on different audiences, ensure transparency and consistency, and manage expectations as the investment community will hold a company to its promises. In our experience, the long-term valuation of a business is not simply about share price performance, it is about a company’s ability to deliver against expectations and how it manages the challenges it faces. This demonstrates a company’s commitment to shareholders and the market will reward those companies which have been effective in doing so.
Invest in your website
A company’s website is its shop window and first impressions of a business are often made by simply glancing at the home page. It is important to have a website which complies with regulation, looks smart, and which is informative and easy to navigate. The website should be viewed as a valuable information tool to convey a company’s equity story, objectives and values. A website must be updated frequently.
Employees drive businesses and for most they are a company’s greatest asset. It is therefore critical that they are kept informed of major announcements to the stock exchange. While most employees should not be brought in as insiders, a management team should consider making its own internal announcement at the same time as a major announcement is made. This will ensure employees understand the business objectives and remain motivated.
Remember, the investment community will not
form an opinion simply based on your share
price performance; the factors that decide
whether it wishes to invest in the company, or
retain a shareholding, are a clear and concise
investment story and an ability to deliver
attractive profit growth against expectations.
Meet with your audience
Meetings with core target audiences (shareholders, analysts and media) are an excellent opportunity for a company to convey its investment story and build relationships and trust in the management team. That team needs to be well prepared to ensure the meetings are as effective as possible. Preparation would include detailed documentation and presentation rehearsals with the company’s broker, financial communications adviser, and other relevant members of the advisory team.
Generally meetings take place at half- or full-year results when the company is able to explain to the investment community its financial performance and what it expects going forward. Meetings with institutional investors, private client brokers and high net worth investors will usually involve a presentation by the management, followed by questions. These meetings are usually arranged by the company’s corporate broker.
The house broker will initiate a Pre-IPO research note and then subsequently publish notes once a company has listed, at certain times of the year (at the announcement of results, for example). Small companies will tend to have sole house analyst coverage but it is important to begin developing relationships with sector and generalist analysts at other houses in order to give wider circulation to a company’s equity story and to ensure that a good understanding of the business has already been established by the time the company attracts wider analyst coverage. Gaining coverage from other analysts serves not only as a useful third party endorsement, but also as an access route to investors additional to those introduced by the house broker.
As is the case with investors and analysts, face-to-face background meetings with journalists are key to building relationships and ensuring they have a good understanding of a business and its objectives. To ensure these meetings are effective, it is important not only to discuss the business but also to cover the wider industry landscape, government policies or economic factors which may affect it. In this way, a journalist is provided with useful information which they can use either in a standalone article or as part of a wider piece in the future.
Site visits are a powerful way to convey the company’s investment story. Well organised site visits will provide investors, analysts and the media with a greater understanding of the business. It will also provide visitors with the opportunity to speak to employees and give them a sense of the quality of the team and the efficiency of the business. Site visits can happen at any time of the year, but events such as new store openings, product launches and acquisitions present excellent opportunities for inviting key members of the company’s audience.
Life begins after listing
An IPO represents a new and exciting chapter in a company’s growth. Transitioning from private to public will be smoother if there are certain structures and disciplines already in place to support the aftermarket and the share price. Some companies are often frustrated by their share price performance despite delivering positive results. Remember, the investment community will not form an opinion simply based on your share price performance; the factors that decide whether it wishes to invest in the company, or retain a shareholding, are a clear and concise investment story and an ability to deliver attractive profit growth against expectations.