It is a fact that the pandemic caused by Covid-19 has accelerated some trends that had been previously identified, among others, the energy transition and the fight against climate change through the decarbonization of the economy and the more intensive use of renewable energy, the digitalization of processes, services and infrastructures understood in a broad sense, the growing importance of cybersecurity, the expansion of commerce and electronic payment methods, or even the greater interest in aspects surrounding nutrition healthy.
All these transformations have provided many listed companies with sufficient reason to review their strategic plans over the past year and a half, whose main reflections and priorities have been shared with investors and analysts through the celebration of the so-called “Investor's Day” or Investor Day. Indeed, these types of events are primarily intended to share the company's vision and main strategic lines, in order to align the market's medium and long-term expectations. But in addition, it is also used to bring members of the Executive Committee and the Board of Directors closer to the level, giving a different dimension to the management team and the image of the issuing entity, since in general the CEO and senior managers are responsible for conducting the event through a series of formal presentations held frequently at the registered office of the listed company or in some type of its facilities related to its production process or business operations.
However, Investor's Day is sometimes misunderstood as an opportunity to push the price higher simply by sharing with the market where the company is going based on projections that usually convey growth and profitability. In this regard, it should be noted that the market's reaction will always depend on your reading of the “message” transmitted in terms of the quality and consistency of the relevant information, and on the credibility of the numbers and the management team in an act in which various aspects must be taken care of that poorly managed could compromise the final result.
To illustrate this idea, we have taken as a reference the celebration during the last twelve months of Investor's Day of nine listed Spanish companies of different capitalizations: Iberdrola, Endesa and Repsol, which brought together their analysts and investors between October and December 2020, Mapfre, Fluidra and Banco Sabadell between March and June 2021, and CIE Automotive, AEDAS Homes and Prosegur between June and July 2021.
In order to analyze the impact of this event on the price, starting from the day before the celebration we call “t” day, we have taken a total of 30 trading sessions, 10 before “t” and 20 after “t” to identify the direction of the market's response, and whether the market anticipated the relevant information that is usually transmitted in this type of communication, or rather processed it over the days following the event.
In addition, as can be seen in the figures, we have calculated the relative behavior with respect to the IBEX 35 before and after the closing prior to the celebration of the respective Investor's Day, to eliminate the possible influence of general market developments on the price of the company analyzed.
The results of the analysis are not conclusive enough to say that every Investor Day has a positive impact on the stock. In fact, despite the fact that some securities ended twenty days later with a higher price at the close of the day before the event, this effect is diluted in some cases when we incorporate relative behavior with respect to the selective index, so that of the nine companies analyzed, only in the cases of CIE Automotive, AEDAS Homes, Prosegur, Mapfre and Fluidra, the market recognized a positive adjustment in expectations based on what they saw and heard during the event, and in the rest of the cases they did not understand that it was enough to switch to a more positive rating. It should be noted that the diversity of the adjustment in expectations, both in magnitude and direction, demonstrates that the market knows how to discriminate when it comes to evaluating shared information in the context of the dynamics and challenges of the sector and the company it faces at all times.
In any case, this type of communication effort should be positively highlighted for the mere exercise of transparency and the search for trust generation that its realization implies. In this sense, sometimes to get the most out of Investor's Day, it is more useful to keep in mind those aspects to avoid when carrying out such strategic events to manage expectations.
We present them as a decalogue:
FIRST: Investor Day should not be considered an event restricted to a privileged few, since it is a matter of communicating relevant information and its celebration in person does not prevent it from being broadcast on streaming so as not to discriminate against any interest group.
SECOND: it is not appropriate to invite representatives of investment banks since this is not an event so that bankers can carry out their business activities with the management team of the listed company, but rather an event to share the company's expectations of future evolution with analysts and institutional investors, and today also thanks to the Internet with retail investors.
THIRD: if you have to communicate any privileged information during the event, such as an announcement of a new dividend policy or medium and long-term projections, register it with the regulator before the market opens, together with all the relevant information about the event, such as presentations, and do not register simultaneously with the live communication of such information, as this could cause unnecessary noise in the market, and even the temporary suspension of the listing by the regulator.
FOURTH: if you share guidance, that these are attainable and traceable objectives, and never transmit quantitative objectives for the mere fact of looking for an artificial revulsive to the short-term price; keep in mind that from that moment on the market will make you a Tracking regulate the company's evolution towards those objectives.
FIFTH: if your company is going to carry out a restructuring of the first level of the management team, do not communicate it days or weeks after the event, but before or on the occasion of Investor's Day, because precisely this event is designed so that investors and analysts get to know more closely those responsible for the business units and the main corporate functions, and not those who are going to stop being so.
SIXTH: the update of the Equity Story of the company that you share during the course of the presentations, it is not recommended that it contain the internal valuation of the consolidated company or the business units, since this is a function that the market must perform in relation to the information available to adjust its expectations. The market will always have rigorous arguments to answer the hypotheses of any internal valuation of the company in factors with such little consensus as discount rates, residual values, time horizons of projections, not to mention the estimation of Cash Flows futures.
SEVENTH: leave nothing to improvisation but everything to planning, especially with regard to the preparation of the question and answer sessions, and the communication skills of the managers who are going to present.
EIGHTH: if you have a lot to tell, don't insist on flooding the screens with data and figures that the audience will never be able to hold back, but only the “strength” messages and critical quantities; leave the detail to be delivered as Handout or to upload it to the “shareholders and investors” web space dedicated to Investor Day.
NINTH: don't limit yourself to traditional ones Power Points to prepare the presentations of the event and take the opportunity to improve your skills with graphic design and digital creativity tools that technology and experts in the field make available to you.
TENTH: don't think that the event ends with the last presentation and your session of Q&A. Collect the Feedback of the audience to update your Investor Relations strategy.
The objective of Investor Day, as of any Investor Relations policy, should not be to maximize the price per se, but to provide the market with the necessary information so that it can efficiently adjust its expectations to what it understands as the company's fundamental value.
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Francisco Blanco Bermúdez
Founding partner of Sigma Rocket
