Every sector has its ups and downs. In Alberta we are all too familiar with the vertigo brought on by whipsawing commodity prices. While a glance south has U.S. markets rubbing up against record highs, as of mid-February the capital budgets of energy exploration and production companies continue to see red ink, and dividends that appeared safe six months ago have been cut to protect balance sheets. Recent conversations have revealed that some energy clients are redoing budgets on a weekly basis in advance of year-end reporting.
So what are we telling clients? We understand that the first inclination is to limit investor relations activity and reduce interactions with a chilly investment community. We get it. It almost seems common sense to adopt the “If-no-one’s-buying-it’s-not-worth-the-time-and-expense-to-put-ourselves-out-there-approach”, right? Wrong. Now is the time to focus on the long game, do some work-overs, invest in facilities and build your 12-to-24 month capital markets plan. We encourage companies to continue, or in some cases start, proactively communicating with their audiences, and to actively manage market expectations. Following are some tips on where to begin.
Create a Bear Attack Plan:
An effective investor engagement strategy keeps you in front of your audience, outlines and reinforces the corporate strategy, provides tangible milestones, and sets expectations of future prospects and financial performance. An investor relations strategy should also contain the tactics used for delivering messages, and the goals of the issuer over the short and medium term. Whether or not the oil price has hit bottom, companies need to be on investors’ radar screens, so when a clear trough develops and bears start giving way to bulls, your story is top of mind.
Never sneak-up or catch a bear unaware. Living in the foothills, most of us can embrace this simple concept. We make noise and we buy colorful bells for our boots or bags when hiking or camping. The key is not to remain quiet. Similarly in the capital markets, you need to maintain an open dialogue with investors and anticipate their concerns; a proactive company will answer questions before they are even asked on a conference call. Deciding on how to frame your conversations often comes down to identifying and understanding what your key messages are. Elements such as how you are going to add value, stand out from your peers, and provide attractive returns should always be easy to take away from your communications. If it isn’t clear, then its time to start looking at adjusting your messages and/or your tactics. Your plan will have laid out some of these delivery vehicles that may include news releases, conference calls, in-house broker meetings, event-driven or planned road shows, or presentations at conferences. The goal is keep nervous investors informed and never allow yourself to hibernate.
When Aiming at a Bear… Don’t Miss:
While companies have very little control over commodity prices, they can and need to control and manage expectations. Although not particularly catchy, there is a reason that “Missed Expectations” is a common headline in the business news.
As stock prices slide, there is a temptation to overcompensate for negative sentiments towards a company or its sector. Over promising however has the same result time after time: It damages credibility. Successful management teams receive a premium because they predictably deliver on expectations. They ensure milestones and timelines they set are achievable. We counsel companies that it’s okay to be candid and transparent about your challenges in light of commodity price adjustments. After all, your peers are in a similar boat. By doing so you are providing investors with the yardstick they need to measure your performance by. It is also important to be open to polling your audience. Knowing what is on their minds and under their skin may give you the foresight on how you need to adjust your message. It may go without saying, but companies that are honest with themselves and the Street will always do better in the long-term.
So let’s be honest, investor relations are not as fun in a down market. The work is harder, and less likely to be immediately gratifying, but the stakes are just as high. How companies position themselves today will dictate how well they do when the bear becomes a bull. Maximizing the value and utility of your listing is your ultimate goal and that means proactively managing for the long-term.