IROs on the front line as the changes take effect

IROs bear the brunt of the extra burden for listed companies under the MiFID II changes. Vincenzo Leporiere discusses the impact he has seen so far on his IRO work.

After so much has been written and discussed, MiFID II is well and truly here. It’s too early to quantify the full impact it’s had on corporate IR, but with a couple of months under our belt, this is what we at Hays have seen on the ground. This is just one example from one corporate and should not be seen as applicable to all circumstances.

Let’s start with corporate access, as we have recently been on the road with management following our interim results. We have very good and open relationships with our shareholders and the feedback we have been getting from them is that, as owners of our business, they are highly reluctant to pay for meetings organised by brokers.

When discussing this with our brokers, their view was that when a roadshow is originated by corporate broking, they are acting on behalf of and for the sole benefit of the corporate broking client (Hays in this case). Therefore, they do not think the MiFID II rules mean that they, or Hays, are obliged to charge investors to attend the meeting. Our brokers make this clear to investors when sending out roadshow invitations, although the final decision of course remains with the investor to ensure their compliance with MiFID II.

We have been more proactive in reaching out to some investors whom our brokers may not have been aware of, if they didn’t have a relationship with them under MiFID II. We spent and expect to spend more time targeting investors as well as dealing with a (so far) marginal increase in direct requests for meetings from the buy side. Having the right systems in place to deal with this is key.

Yes, as many predicted, there has been an increase in IR workload, but it’s a far cry from having to set up a whole in-house corporate access team. There is no doubt that we need to work smarter, focusing on the value-add activities like relationship-building and automating or outsourcing non-core activities – there are a number of service providers and tech solutions out there for this. 

One thing we are still experimenting with is roadshow feedback. We may do more of this ourselves, as our investors may prefer to speak with us directly. This again boils down to the type of relationship you have with the market and the individual fund managers.

Conference schedules
We are also watching with interest how the conference landscape evolves, as depending on the firm’s relationship with investors, some may not offer attractive schedules for corporates. Early signs are that conference schedules look a bit thinner, and more geared to smaller investors than may have been historically. You wouldn’t want to send your management team to a conference with a half-filled schedule, equally would their presence (instead of IR-only) be seen as better value for money? There have been various rumours on the chargeable spread between CEO and IR attendance. As participants in the conference, it is perhaps reasonable for IROs to ask the organiser for the pricing model.

In terms of analyst coverage, we haven’t seen much change. Analysts are still sharing their research notes and models with us, although it’s fair to say that a small number of them are now being more selective with mainly ‘maintenance’ research. We have also noticed that, in an effort to stand out from the crowd and appeal to the buy side, some firms have developed proprietary market analysis tools to corroborate their analysts’ thesis on stocks. 

More broadly, we’ve seen some analysts taking more unconventional views, perhaps consciously deviating from company guidance, to differentiate themselves. This of course can have an impact on consensus, however we haven’t changed our long-standing approach of collating, publishing and regularly updating consensus on our IR website. 

Aside from the transparency benefit, this aims to reduce reliance on third party consensus aggregators, which have their own criteria when it comes to including/excluding estimates as well as their own ways of collecting and analysing data.

This is just a sample of what we’re currently seeing on the ground. As I mentioned right at the start, the repercussions of MiFID II regulations are being felt differently across the corporate landscape. I recently attended an IR Society workshop on IR for smaller companies and it is clear that the magnitude of some of these MiFID II challenges is much greater for smaller companies. 

Things will continue to evolve in the coming months. The major broking firms will take it in turns to claim they have the largest list of subscribed institutions. External rankings may become much more meaningful. Platforms aimed at facilitating direct communication between corporates and investors will continue to be developed until perhaps one or two will start benefiting from the network effect and emerge as ‘the Facebook of IR’. For IROs the focus will be on working smarter and making the best use of available resources. 

Vincenzo Leporiere is on the IR team at Hays.

Published 28 March, 2018

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