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Investor Relations

 

Investor relations is the term used to describe the ongoing activity of companies communicating with the investment community. While the communication that quoted companies undertake is a mix of regulatory and voluntary activities, investor relations is essentially the part of stock market life that sees companies interacting with existing shareholders potential investors, analysts and journalists.

 

Why commit to investor relations?

 

Fundamentally, the remit of investor relations is not only to create an awareness and understanding of your company amongst the investment community, it is also to help quoted companies gain access to capital and achieve liquidity in, and fair valuation for their shares.

 

Access to capital

The ability to raise capital and the ease with which that capital is raised are often seen as key measures as to how successful a company’s investor relations efforts are. Entering into a dialogue and developing relationships with the investment community over time so that its participants become cognisant with the company and its investment proposition is generally seen as a worthwhile exercise when trying to achieve efficient, cost-effective access to capital.

 

Liquidity

One of the outcomes quoted companies aim for from their investor relations activities is to attract liquidity – frequency of trading in their shares. Profiling and explaining the company to the investment community on a continual basis can assist in creating greater awareness of a company. Depending on the availability of shares, this can then assist a company in attracting pools of buyers and sellers and the potential for higher frequency in the trading of its shares.

 

Fair valuation

Similarly, one of the other main goals of investor relations is for a company to achieve a fair market valuation, ultimately reflected in the share price, by managing expectations in relation to the company’s current and future performance.

 

Communicating to and with the investment community will enable a company to detail its own record of its performance and its strategy using publicly disclosed information.

 

It will also help a company to understand how it is being evaluated and whether or not the market’s expectations towards, and understanding of the company are in line with its own.

 

Getting the balance right

Practicing investor relations will not automatically guarantee a company heightened profile, easy access to capital, liquidity in its shares or a fair share price. Naturally, other factors outside and in addition to a company’s own activities, such as the economic situation, a company’s fundamentals, confidence in its management team, the availability of shares and competition for investors’ money, can have an impact on how a company is perceived, funded, traded and valued by the market.

 

Rather, the aim of embarking on an ongoing investor relations programme is that it enables the investment community to have a greater awareness of the company’s investment case and commercial activities so that shareholders, potential investors and traders, can each take an informed view and a decision as to their involvement with that particular company.

 

For many quoted companies, the balance will be about updating those who already follow or invest in the company and profiling the company to new audiences.

 

Focus on key investors

One of the most important steps for quoted companies is to identify who are the most important individuals at shareholder and target shareholder institutions they need to build relationships with. Investment decision making for particular funds managed by firms is usually concentrated in a small number of individuals.

 

Whilst they may rely to a greater or lesser degree on advice and recommendations from internal analysts and external analysts and salespeople, ultimately they are accountable to their investors for the performance of the funds they manage.

 

In order to make the best use of the time spent on investor relations, companies will need to identify the most significant institutions and individuals and also what their current opinion is on the company.

 

Armed with this information, companies can then set about allocating their resources to best achieve their objectives.