Time’s ripe for small caps to up the investor relations ante
In an environment of volatility and uncertainty, small caps can ill afford to undersell or miscommunicate their story.
The question of ‘what keeps you up at night?’ tends to appear in the Q&A segment of almost every investor call for ASX-listed small cap companies.
While the typical small cap CEO is quick to dismiss the question and assure the market of uninterrupted sleep, advancing economic pressures suggest a very different reality.
Of the 1,800+ listed companies outside the ASX 300, a large number of directors are navigating the challenge of valuation plunges, cooling liquidity and a barren market for raising capital.
Interest rate rises and political instability have led to a plummet in valuations. Small caps have been hit hardest, with a 15.3 percent year-on-year drop on average. Sectors with a relatively high number of small caps have fared even worse with tech stocks, for example, having seen more than a quarter of their market value vaporised in 12 months.
Poor market confidence has also led investors to tighten their purse strings, drying up the equity capital pool. The Australian Financial Review is reporting a collapse in upcoming IPOs, with just $121 million in floats expected in the coming months. Last year, this same figure was more than ten times higher at $1.25 billion.
Competition has become fierce for small companies relying on equity capital to survive, and existing shareholders are questioning their long-term loyalty.
In this environment, effective investor communication has never been more important. The difference between surviving or perishing could lie in an investor relations strategy that clearly communicates the path to creating long-term shareholder value. Without effective investor relations, companies risk cutting themselves from capital financing options and self-sabotaging their long-term growth.
To avoid pain in these turbulent conditions, Australia’s small listed companies need to double-down on their investor relations strategy based on two critical components:
Establish a narrative that earns and sustains investor confidence
Done well, investor relations can positively influence a company’s market cap, share price and liquidity. The best investor relations strategies ensure every opportunity is taken to achieve this.
It’s not about companies seeking to ’hype’ their share price. Rather, a well-crafted story that lays out every single truth can help the market understand and price-in value where it would otherwise be underestimated or unknown.
Material news aside, too many small companies are now missing opportunities to share positive information snippets and commentary, leaving investors to effectively guess their way through an assessment of a company’s long-term value. Every one of the dozens of listed companies I’ve worked with has an innovative product, a large global market opportunity, a highly experienced Board and management. Every day, exciting initiatives are created within the company’s walls that have the potential to contribute to long-term growth. Yet, so many companies self-sabotage by sharing only the bare minimum, leaving the market to speculate on the big picture.
A strategic approach to crafting a clear investor narrative can help companies stay competitive and ensure investors, current and prospective, have an accurate picture of the value that an organisation is capable of producing.
Time to look beyond the ASX-mandated PDF
In an age where information is everything, surely the time-honoured PDF has had its day when it comes to small caps selling their story to a highly-discerning investor base.
Under continuous disclosure law, ASX-listed companies must disclose material news in a timely manner using the PDF format. For many smaller listed companies, this requirement has led them to an unhealthy reliance on this format as their only storytelling medium. It must be said… in 2022, the PDF is looking decidedly stale, if not outdated.
Since its introduction in 1993, the PDF format has barely changed. For iPhone and Android readers, its pages, structured like A4 paper, make for a bad user experience.
Australians have moved beyond the PDF to richer mediums for information consumption. We consume 100 minutes of video per day and 37 percent of us regularly obtain information from podcasts. Listed companies relying solely on the PDF to present their value proposition invariably miss opportunities and leave emerging market segments in the dark.
With an investor relations strategy that pairs ASX-mandated PDF announcements with rich video commentary, podcast episodes, LinkedIn leadership, webinars and media appearances, companies give themselves the greatest chance of communicating fair value in a competitive and volatile market. This can go a long way in a time of need.
Indeed, with an effective investor relations strategy, companies can rise above the competition to earn investor confidence in their value, build a supportive share register, and give themselves the best chance to prosper over the long term.
Sam Sinclair is a senior adviser at Six O’Clock Advisory.