Inside Investor Relations – Volume 22 – Good investor relations can be a powerful tool to increase a company’s valuation

lrene Wu 2021-02-22

"How does good investor relations affect a company’s value?" is often an important consideration for many small and medium-sized companies when deciding whether to invest resources in investor relations. Our previous volumes of Inside Investor Relations provided a series of guidelines for a company to establish a good investor relation communication system. However, it requires companies to invest additional resources to build up such system and create long-term reputations. As a result, many small and medium-sized listed companies would think that there is no need to offer good investor relations and should only focus on company operation, or only communicate with investors when they have better financial performance. In this volume of Inside Investor Relations, we use quantitative data to examine how much additional value the capital market is willing to pay for "good investor relations". This "additional value" enables a company to maximize its shareholder value, as well as raising capital at a lower cost than peers to facilitate its growth.

We agree that the effectiveness of a company’s investor relationship management should not be solely measured by stock price, but stock price and valuation are the most direct quantitative indicators. A report(1) issued by IHS Markit in September 2020 pointed out that, comparing 30+ IR Award winners from 2018 and 2019 (as designated by IR Magazine) to 100+ peers, it discovered that award-winning IR programs trade at an average 15% valuation premium to their peers, as well as an average of 5% reduction in share price volatility.

In addition, IR Magazine published a survey report(2) based on responses from 421 buy-side and sell-side analysts and portfolio managers in March 2018, and found that 68% of respondents would apply a premium of 5-10% or more to good investor relations (Figure 1). On the other hand, 71% of respondents assign a discount of 5-10% or more to their share price valuation of companies that practice less-credible investor relations. Besides, it is worth noting that the respondents in the Asia-Pacific region are willing to pay a higher premium to companies with good investor relations than other regions. 58% of Asia-Pacific respondents add 10-15% or more, compared with 26% in EMEA and 24% in the Americas.

In fact, earlier studies also indicated similar results. A study(3) jointly conducted by Singapore Management University (SMU) and Investor Relations Professionals Association of Singapore (IRPAS) in 2009 showed that 89% of surveyed Singapore-based fund managers are willing to pay a premium for companies with good investor relations, and 24% are willing to pay a premium of more than 15%. Thus, we believe that good investor relations management is an important tool for companies to maximize its shareholder value, while companies with less credible investor relations may be punished by the capital market with a lower valuation.

Source: IR Magazine, 22 March 2018, The Value of IR

In summary, investor relations is a good investment. It can mobilize the power of capital market to assist a company in expansion during its growth stage, and moreover, to help a company survive a crisis. Given investors are faced with plenty investment ideas, it’s even more important for small and medium-sized companies to have a good investor relations management to attract investors’ attention in driving “discovery”, and helping investors better understand the company’s investment thesis. This long-term communication journey is endless. Regarding how to establish good investor relations communication, please refer to our previous volumes of Inside Investor Relations, including building an effective IR team, constructing an IR plan, investor targeting, key elements of a successful meeting with long-term investors, what to avoid doing for IR management, and measuring the effectiveness of IR program.

Figure 2: Good investor relations can be a powerful tool to create a company’s long-term value

QIC advisors consist of experienced professionals that have worked in international corporates, major sell-side and buy-side companies for many years. By leveraging our experiences in IR, capital market and investments, we help corporate IR team to work efficiently whether within the corporates or facing the ever-changing capital markets. If you are interested, please reach out to us and discover ways we can help with your IR works.

Contact: yvonnehuang@qtumic.com

Reference:

(1) IHS Markit, 17 September 2020, Investor Relations is a Competitive Advantage

(2) IR Magazine, 22 March 2018, The Value of IR

(3) Lianhe Zaobao, 23 June 2009, Some 90% of fund managers are willing to pay premium for SGX- SMU listed companies with good investor relations

lrene Wu

Irene has focused on the Technology Hardware and Software & IT Services sectors since joining QIC in early 2015, providing comprehensive capital market advisory to clients. During her tenure at QIC, Irene has accumulated extensive experience working with both public and private clients. For public clients, Irene has worked closely with clients' management teams to raise their profile in the global capital market. She has assisted clients to reshape capital market stories and attract high-quality global institutional investors, helping her clients optimize their shareholder structures and create long-term shareholder value. Irene has served a diverse range of Taiwanese listed companies, including global leaders in various fields such as GaAs foundry, PCB, CCL, computer peripherals, connectors, industrial PCs, server chassis, acoustic, and camera modules. For private clients, Irene has assisted clients in fundraising and facilitated exits for existing shareholders. Additionally, for those clients with subsequent listing plans, she has tailored a series of promotion activities to enhance clients' exposure in the capital market as well as facilitate smooth communication with potential institutional investors and sell-side analysts. A classic case is assisting an Asia-leading cloud-managed service provider to complete fundraising and bring in well-known global institutional investors when it was listed on the Emerging Stock Board, creating shareholder value.