Professionalised investor relations represent an untapped potential for many Danish CFOs, who ought to drive this topic higher up the agenda, according to partner and leader of Deloitte’s CFO programme Kim Hendil Tegner.
Deloitte’s CFO Survey Spring 2020 shows that investor relations is not at the top of the agenda of all CFOs. Less than half of the CFOs working for a publicly listed company responded that they spend time on IR, while only half have an IR function.
These results are surprising to partner and leader of Deloitte’s CFO programme Kim Hendil Tegner, who expected IR to be of higher priority.
“More CFOs should consider whether they put enough focus on this area. Thorough and professionalised investor relations directly affects the valuation of a company, and our survey indicates that there is a significant potential for improvement, which should be realised.”
From advising CFOs of Danish companies, Kim Hendil Tegner has seen evidence of that there are great differences in terms of how the individual CFOs engage in investor relations and how well they each manage to establish constructive relations and dialogues with their investor base and the equity analyst community covering their company. Kim Hendil Tegner continues:
“From our dialogues with leading institutional investors, equity analysts and CFOs, such as Jens H. Lund and Pernille Friis Andersen, with a strong IR track record, we can tell how important professionalised IR and a strong CFO focus on IR are to the valuation of a company and easy access to capital markets. Therefore, we have examined what is good IR practice and how can CFOs better learn to master this discipline,” he says.
Three crucial points
Fundamentally, our research indicates that there are three areas essential to professionalised investor relations, explains Kim Hendil Tegner.
Firstly, it is important that CFOs make time to thoroughly study market dynamics and the needs of investors and equity analysts. For instance, CFOs must understand equity analysts need for relevant and timely information to make correct recommendations for their customers.
“When competent CFOs announce financial results, not only are they familiar with every little detail of their company’s performance and know all financial numbers like the back of their hand. They are also extremely good at bridging the gap between complex financial numbers and the underlying performance that equity analysts need for their projections and financial modelling,” he says and continues:
“On the other hand, if analysts do not receive the right information – or receive it too late – they will have to advise investors with reservations. The result is that the share price will be negatively affected.”
Next, the equity story must be well researched and a completely integral part of the company. The equity story must render visible how a company differentiates itself and creates increased growth and profitability. It needs to support the company’s purpose, the exact targets for future performance and achieved results. Basically, the equity story is crucial to the investors.
“In our opinion, the CFO should be the company’s equity story’s advocate externally and internally in the company. In this way, the CFO can ensure that the organisation keeps its promises to the market while being able to drive the necessary internal processes enabling this.”
Lastly, but most importantly, transparency is key. A company must ensure the necessary, consistent and honest communication to the market. This includes the continuous quarterly disclosure where the CFO manages to bridge the raw financial data and the information that the investors and equity analysts can actually use and understand.
This also includes continuous contact to investors and equity analysts who need the senior management’s perspective on various things and who want to know all the facts and information.
“This is also valid in times of crisis, like the one we are currently going through. It is obviously not possible to make accurate predictions about the future when there is great uncertainty, but the market needs to know about management’s perspective and focus. Which are considered the most likely scenarios, and how is management preparing for them? During a crisis, indications of positive results for the beginning of the upcoming quarter and anecdotal evidence of any positive impact that the company has already made can provide very relevant and useful indications for investors and analysts,” he says and stresses that it creates a sense of security in the market when the senior management is accessible, open and honest.
Significant potential for improvement
According to Kim Hendil Tegner, it is primarily only fairly large companies that work with investor relations in a structured and professionalised manner and where the CFO sets aside time for this. As an example, he also stresses that there are great differences in how good Danish companies are at developing, communicating and executing an equity story.
“After having gone through the investor communication of a large number of publicly listed companies, the conclusion is that there is a clear potential for improvement at least in terms of how companies explicitly communicate their equity story and probably also how well integrated the equity story is in the company’s strategy and operations.”
Kim Hendil Tegner stresses that even though a number of CFOs and companies in the Danish market excel at investor relations on all parameters, there seems to be room for improvement in many companies.
“The investors and equity analysts we have spoken to have given us several examples of publicly listed companies that could be better at timely adjustment of guidance, ensuring better transparency and being more accessible when required. Also, our CFO Survey confirms that there here are substantial differences in how Danish CFOs approach investor relations. In conclusion, there is no doubt that many Danish CFOs will be able to create more value in their positions if they give IR higher priority.”
Four concrete pieces of advice from Kim Hendil Tegner
- Understand investors’ and analysts’ needs
It is key for the CFO to understand investors’ and analysts’ needs, their view on the company and their performance perspective compared to the competition. Talk to them and meet them in person. It is the only way to develop the insights you need to fill your role effectively.
- Use your equity story as benchmark
Your equity story needs to be complete and fully integrated with the company. The CFO must ensure that the company complies with its equity story, that it navigates accordingly and that internal processes support execution.
- Professionalise your investor care
Regardless of a company’s size, it should prioritise at least having a dedicated head of investor relations. Small companies can combine this role with other roles. Dedicated support is key to relieve the top management, ensure market contact and maintain sufficient professional investor care.
- Ensure transparency
The CFO has to ensure consistent and honest communication in the market, for example via the quarterly disclosure during which the CFO translates raw financial numbers to information that investors and equity analysts are able to understand and use. Moreover, it is up to the CFO to ensure ongoing contact with the market and to openly discuss ideas and perspectives, not least during times of crisis, like the one we are currently going through.