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Transparency in digital investor relations: does it pay off?

Does the performance of your company’s stock benefit from open information about your company’s strategy, operations and prospects? Is it worth trying to find out what kind of information financial audiences seek to make informed decisions? To which extent, if any, should the company’s information flow exceed regulatory requirements? How generous should the company be with forward-looking information? To put it frankly, do you work hard enough for a fair valuation of your company stock?

The purpose of a public company’s investor relations department is to help market participants to fairly value the company’s listed equity and debt securities. This is primarily achieved by a steady flow of information to current and prospective investors, market regulators and other groups with an interest in, or influence upon, the company.

Although the timely and orderly disclosure of key company information is mostly regulated, there is still plenty of room to improve on minimum regulatory requirements and provide additional information that will help make informed investment decisions.

Whereas many companies choose to provide this additional information, others see no need to go this far or see this informational supplement as detrimental to the market’s assessment of company value.

And this is the issue: is transparency desirable in the – nowadays mostly digital – interactions between a company and the investment community? How far should it go in this information-sharing effort?

Feel inspired by Gruppo Hera’s IR section. Gruppo Hera was the best performer on our Webranking 2016-2017. From a total of 15 points the Italian utility company achieved an impressive score of 14.7.

Which content to provide – and how

Except for technical investing, investment analysis relies on in-depth knowledge of the company’s business, operating environment and funding which calls for providing information generously to financial audiences.

Tracking financial targets and performance is another method investors use to evaluate the reliability of current and future company guidance. However, many companies are wary of sharing this information with outsiders, which inevitably limits visibility.

Comprend’s latest Capital Markets survey, with results still to be released, validates the expected finding that capital market participants assign high importance to companies’ annual reports and financial target disclosures.

At the same time, analysts and portfolio investors also attach great importance, as expected, to finding out more about the scope and spread of company operations, financial outlook and business model.

To make the information on these items easier to search on the web, it should be available in HTML and make it easier to find by adding clear headings under the correct section. To make it easier to assimilate, clear and concise pieces of content should be written.

A good example of these efforts is Kesko’s corporate website. The company achieves its communications objectives by providing content with clear labels, straightforward information and, above all, no visual distractions such as side menus.

IR content is more than what is typically found on the ‘Investors’ section of corporate websites. Our surveys revealed that capital markets participants are also interested in  seeing fast facts about the company, a list of competitors and a business model.

As well as these points, below we have listed the ten most important IR content that companies should ensure feature on their websites in order to meet the needs of its capital markets stakeholders.

  1. Annual reports
  2. Investor contact
  3. Financial targets
  4. Financial presentations from Roadshows, Capital market days, AGMs, etc.
  5. Financial target achievements
  6. Financial outlook
  7. Overview of financial key figures
  8. Group strategy
  9. Dividend policy
  10. Key debt ratios

Matching IR content to the audience

Audiences of corporate websites are diverse. Business journalists do not only seek press releases, job candidates do not just look for job vacancies and equity analysts are more interested in companies’ financial targets than we might think. Financial targets and target achievements are the second most important content for capital markets participants while annual reports have the number one spot.

Prospective investors are also engaged through the disclosure of key figures and policies (dividend and remuneration). Nevertheless, our survey results show that all stakeholders attribute high importance to companies’ general information such as their geographical presence, business model and fast facts with key information.

Having a complete ‘About us’ section for capital markets is equally as important as having an IR one. And, with that in mind, a company aiming to be transparent on its investor relations should start by disclosing its activity from the most basic information to its investments and divestments.

Moreover, 51% of our capital markets respondents think companies should improve their IR sections and 46% think companies should improve their ‘About us’ section. These are the two most pointed areas for improvements. Not only that, but these stakeholders also value a site’s loading speed and responsiveness. In fact, 54% of our respondents access corporate websites through mobile devices at least once a week.

What area(s) do you think corporate websites should improve?

For these and many other reasons that can be found in our articles, corporate websites should have a full-fledged IR section that will not only attract potential investors through an informative fact sheet but also through a financial outlook  statement on the company’s business model and a pleasant user experience.

Our forthcoming Capital Markets Spotlight report will have more on these topics. Keep an eye out for it on the Webranking section of our website.

Does IR transparency pay off?

Comprend’s latest Webranking study revealed that US companies are at the bottom end of IR transparency for their corporate websites. On average, US listed companies fulfil only 9% of Webranking’s IR criteria – the lowest performance among all countries assessed.

As the trading volume of US stock markets exceeds by far the combined volume of major European stock exchanges, this suggests a correlation between the shortfall in transparency and the intensity of stock trading. Even though different regulations apply to this market the consequences are clear. The lack of transparency may lead to volatile stocks.

In contrast, the openness of a company in its financial communications contributes to investor engagement. So, how can IR transparency benefit a company? It is well known that companies seek a stable shareholder base – something that transparency helps to create. After all, companies are aware that volatile trading may impact their cost of capital unfavourably.

 

For further information please contact André Nunes, Research analyst, at andre.nunes@comprend.com.

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