City firms love to play an economic blame game over investor confidence
Companies are far too quick to blame the economic environment when a share price dips but they should look at the many things they can do to attract investors, Oliver Hughes writes
There’s a whole bag of excuses companies dip into when trying to explain difficult results or depressed share prices.
Bad weather keeping consumers off the high street. The wrong kind of weather, meaning fashion retailers stocked up with t-shirts and shorts when shoppers wanted coats and scarves. Heatwaves. Floods. Train strikes. Too many bank holidays. Not enough bank holidays. Covid. The lingering impact of Covid. Faster than expected bounce back from Covid.
The list is endless. ISIS was blamed by Imperial Tobacco for poor results in Iraq, after the terror group’s land grabs caused distribution issues. Justin Bieber’s waning popularity was linked to Elizabeth Arden’s largest-ever loss after sales of his signature fragrance, well, stank.
But perhaps the most common excuse is a poor economic backdrop, which is often described as “uncertain”, “challenging” or “difficult”. There may also be a reference to “headwinds”, too.
This is fair enough when it comes to sales performance. But findings from MHP’s Investor Influence research are worth noting for companies solely blaming a weak share price on the economy. Just 2 per cent of investors cited the UK’s macroeconomic outlook as the most important factor when making investment decisions.
The research – which considered the views of over 200 professional and retail investors – found that when it comes to stock picking, investors are far more influenced by factors within the boardroom’s control. Company specific outlook was cited as the key driving factor, with overall track record and balance sheet strength both ranking highly.
ESG strategies are increasingly under scrutiny, but research shows that to some investors, they fall lower down the list of priorities. Just 1 per cent of those surveyed claim a company’s stance on environmental, social and governance issues was the main factor when they are deciding whether to buy in. Despite dividing opinion, it’s clear ESG is here to stay, as only 16 per cent of investment professionals claim it is not important, whilst more than half consider it “quite or extremely” important.
The findings also revealed that businesses should prioritise communication with investors. Financial results remain the most valuable source of information for both professional and retail investors. Delivering an informative, insightful and smooth presentation is more vital than ever. Agonising over the Q&A section also pays off, with this being seen as the most valuable by 43 per cent of investors. These sessions are seen as crucial when engaging with companies, along with the opportunity to meet with – and potentially quiz – managers below the C-suite.
Businesses would also do well to think about how they present non-financial news on their own websites. Such releases are minutely examined by professional investors for details about a company’s daily operational progress.
Despite the increasingly interactive and digital world, both sets of investors still view annual results as key to informing their decisions. While AI is being drafted in by the professionals to identify trends or anomalies, retailer investors appreciate a well presented and informative tome to scrutinise.
The media remains a cornerstone in swaying investor sentiment. Most important are the business columnists whose opinions can make heroes or villains out of companies, with 30 per cent of investment professionals turning to them first in their morning paper. These journalists hop from one subject to another as the news agenda changes so can suddenly find themselves writing on a business of which they have limited specialist knowledge.
It is therefore vital for companies to have a media profile in place, as well as clear messaging, the processes in place to deliver that messaging and leadership that is comfortable speaking to the press.
Having that established profile is essential in situations such as IPOs or activists turning up on the register. The research found that how a company is perceived and its public rebuttals to activists are what counts most when sentiment towards the business is measured.
So, what does this all mean? The findings show that there can be no excuse for management blaming the economy for their company being poorly rated. There are plenty of avenues to pursue to make their company an attractive proposition for investors.
Oliver Hughes is Head of Capital Markets at MHP Group