Despite Australia having had a strong mining and resource sector and therefore weathering the storm better than most OECD countries, we have not been totally immune. A dollar at US parity and above, coupled with relatively high interest rates, has forced many businesses to contract and has threatened with extinction industries in the manufacturing, retail and tourism sectors. These local and international market conditions have convinced many Australian companies that they should put their investor relations ambitions on hold.
Markets always recover
Many CEOs are worried that investors don’t want to inject money into their company as long as the world is stuck in what appears to be a sustained bear market period – even though history shows us that after every bear market the good times eventually return and the bulls rear their heads.
The same CEOs seem to think it is better to keep a low profile and play it safe rather than actually try to engage with potential investors. Well, here’s the thing: the way the market is going, it is a dangerous tactic to ignore investor relations. Let me tell you why.
While the road to global economic recovery might still lie ahead of us, there are a number of positive signs that the market is starting to recover and that many Australian companies, especially small caps, have handled the financial crisis better than most of us anticipated. This could be because the performance of small companies in particular often goes against the trend.
Their earnings growth is based more on increasing their market share than how the general economy performs.
In the current economic climate, companies have been forced to tidy up their balance sheet and cut unnecessary costs in order to be ready for the growth that lies ahead when the real and sustained recovery kicks in. The fact they’ve come through in one piece means they’re now well placed to capture any future growth – and this is where investors come into the picture.
A good time to invest
The interest in share market investment is currently at its lowest level since the 1990s. A review of past financial market performance clearly shows us that those who are smart enough to buy shares when investor sentiment is still negative are the ones most likely to benefit from taking the investment plunge.
Many professional investors know this, and while the majority of us are reluctant to make any real investment decisions during these financially unstable times, the professionals continue to search for companies with the greatest potential for growth in the inevitable period of recovery ahead. What we see as an unstable market they see as an opportunity to make money when the market finally turns around.
Keep investors keen
So, what message does that convey to the CEOs who have decided to ignore investor relations during this period? Firstly, investor relations should be an ongoing process. The market may have slowed down, but that doesn’t mean companies should forget about keeping their existing shareholders informed or working on obtaining new shareholders. Attracting the interest of investors, analysts and client advisers and persuading them that they should find out more about the company is vital, and that is where investor relations can help.
To stay visible and build relationships, companies should coordinate media relations and investor communications. Communication with stakeholders should be factual and not too quick to make promises. It should focus on the long-term story and balance sheet strength and address any concerns.
Difficult times or not, for those investors who are looking to invest, it’s important they receive high-level information that can help them to decide whether to delve further and, perhaps, buy shares or recommend investment.
Without this information, client advisers and potential investors will have difficulty understanding the strategic or operational significance of an announcement. An investor relations firm can help in the establishment and maintenance of the vital relationships circling within the financial community.
