Inside Investor Relations – Volume 20 – How to Measure the Effectiveness of Investor Relations Program?

Why do we need to track IR Performance?

Tracking the effectiveness of investor relations program is very important for any listed company and its IRO. By doing so, an IRO could evaluate the return of their IR efforts, or knowing where to improve accordingly. However, what does a successful IR program look like or what kind of results should one expect? In many cases, a successful investor relations program requires teamwork, not something IRO can achieve alone (for how to build an investor relations team and work with senior executives, please refer to Inside Investor Relations – Volume 16 – How to build an effective IR team?). As investor relations has evolved, IROs need to identify the best measures of success for their own industries, companies and teams.

Metrics for evaluating the effectiveness of IR program can be different

Frankly speaking, each IR program should be different according each company’s goals and resources. As a result, metrics for evaluating the effectiveness of IR programs will be different. For instance, some companies may value “liquidity of stocks” more than “foreign institutional investors holdings.” A survey conducted by NIRI in 2016 shows that the five groups of most commonly used tracking metrics are "quality of investor outreach", "shareholder composition/diversity", "stock price/share fluctuation", "perception studies/investor feedback" and "analyst coverage". Small-cap companies (market cap of US$2bn or less) use " shareholder composition/diversity" as indicators the most often, followed by " stock price/share fluctuation" and "quality of investor outreach", while for large-cap companies (market cap of US$10bn or more), "quality of investor outreach" is the most popular one, followed by "perception studies/investor feedback". This article mainly focuses on these five major tracking metrics.

The five important tracking metrics

1) Quality of Investor Outreach

The number of investors met or the number of meetings conducted during a time period can be used as a metric. While it’s good to have a large number of investors meetings, whether these investors are target investors may be even more important (for investor targeting, please refer to Inside Investor Relations – Volume 3 – Investor targeting). Therefore, the number of target investors meetings could be a better metric. In terms of qualitative metrics, it is also worthwhile to review the content of investor meetings and the quality of questions asked by participants, which reflects the quality of the meeting.

2) Shareholder composition/diversity

After introducing the company to target investors, the best result is that they become shareholders or for existing shareholders to increase their holdings. Therefore, shareholder composition and the diversity of different types of investors naturally become a good metric. In addition, understanding the investor composition can be quite helpful to examine whether or not companies have effectively communicated their strategies and growth drivers to investors. For example, for high-growth companies, it is worth exploring if their shares held by growth investors are higher or lower than that of its peers. Companies can also review if their ESG is executed correctly to attract appropriate ESG-oriented or passive investors.

3) Stock price/share fluctuation

Stock price performance is a fairly direct metric. In an efficient market, a company should be fairly priced according to its fundamentals. However, there many factors influencing the fluctuations in stock prices, so these types of market metrics must be read with care. Market cap growth rate, peer valuation comparisons such as price-to-earnings ratio (P/E), price-to-book ratio (P/B), EV/EBITDA…etc., and share price performance relative to peers or industry are also metrics that are frequently used.

4) Perception studies/investor feedback

Qualitative metric such as investor feedback, and perception studies from market participants including both buyside/sellside can often offer clear and direct comment on the effectiveness of IR programs or activities. These feedbacks usually help companies better understand if their strategies and growth prospects are communicated clearly, or if the content of the presentation is sufficient, if the management has answered the questions directly, and if the information provided by the company is consistent Companies can take advantage of the feedback for internal review and make adjustment accordingly. Although not every investor may be willing to share their feedback with the company directly, we recommend companies to proactively ask for investors feedback right after each meeting to have them share their thoughts.

5) Analyst coverage

If sell-side analysts cover the company, it gives investors more access to understand the company. Therefore, the number of research analysts writing reports or has formal coverage on the company is also an important metric. However, after the implementation of MiFID II, brokers now have less resources in covering smaller companies. Therefore, smaller companies have more responsibilities in promoting themselves to investors.

In summary, IROs are often challenged by setting the appropriate goals, that are identifiable and measurable for their IR programs. What tools can IROs use to evaluate effectiveness of investor meetings? How does IRO determine if the company’s story is well understood by the capital? What are the quantitative and qualitative metrics that can help assess the return on an IR team's effort?

If you looking for answers to the above questions, we have the answers for you. QIC advisors consist of experienced professionals that have worked in major sell-side and buy-side companies for many years. We help companies to formulate their strategies through our understanding of the industry and in-depth interviews with the management team. We also help facilitate the meetings with various types of investors. If you are interested in learning more about our services, please reach out to us.

Contact: yvonnehuang@qtumic.com 

Sources:

1. Measuring Your IR Program’s Success Research Report, NIRI Analytics, December 2016