03 June 2022

Investor Relations in the Age of Online

Angus Brien

Access to investment and effective relations with the financial community has a major bearing on the success of any business. To maximise shareholder value in our fast-paced world, companies must build visibility and trust with investors, analysts and the media.

Today, the media landscape is splintered into a hundred channels and rising. Connecting your company to the investment community, as any Board will tell you, is becoming increasingly challenging.

Successful Investor relations, or IR for short, is defined by the boffins as two-way communication between a company and its financial community, but ultimately, it’s about doing whatever it takes to make sure a company's securities achieve a fair valuation. That is a fair share price.

Investor relations ensures that your stock is being traded fairly through the dissemination of key information, so that investors may determine if a company is a good investment for their needs.

The work of IR traditionally includes developing press releases, communicating through various media, hosting meetings and presentations, creating annual reports and maintaining websites.

As the media landscape changes, IR activities have evolved to include social media communication, video production, and finding new ways in which to reach investors such as webinars.

Press releases, earning calls, investor PowerPoint decks, factsheets and corporate websites are no longer the only channels through which investors access and consume data.

The role of IR is wide and varied, and companies can often undervalue the importance of good investor relations. It is crucial that the main roles of IR are understood. These include but are not limited to:

  • Enabling the company to achieve the share price that best reflects its own value
  • Strategic planning of social media and marketing
  • Representing the company to investors and vice versa
  • Providing financial information to investors in a timely and accurate manner
  • Providing non-financial data to support company valuations
  • Building receptive markets
  • Presenting investor feedback to the company

An effective IR program reduces analysts’ and investors’ costs of obtaining and processing information about companies and their growth. This is done by improving the quality of the communication performed by the IR department.

Evidence has shown that by improving information quality and accessibility a company can increase the number of analysts following them and increase the demand for their shares.

Good IR benefits a business by:

  • Improving the company’s visibility
  • Building long-term credibility with the investment community
  • Enhancing long-term shareholder value
  • Familiarising investors with operations, performance and growth
  • Targeting the desired investor base
  • Maintaining a loyal shareholder base
  • Attracting financial analysts to cover the company
  • Lowering the cost of capital

IR must be performed as a continuous effort. It is not enough to attract investors then cease communication with them. Performance is not enough to attract new investors or even keep current investors interested.

While companies must provide IR information to attract and retain investors, they must also be realistic about the types of content and features they need most.

Offering a simple design and a coherent story about the company is better than drowning users in incomprehensible data.

It is also important to understand what IR is not. It is not for inflating the business and it is not a tool used to raise the stock price. An inflated stock price will be discovered quickly when the company fails to live up to expectations.

An over-priced stock can have serious negative impacts. IR used in this way will result in a stagnant or sudden downward revaluation of the stock price. Therefore, the emphasis of IR is to achieve a fair sustainable stock valuation.

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