Mapping a way through the ‘MiFID II maze’
MiFID II is having a fundamental effect on the way small and mid-cap companies access capital. Investment banks and brokers are separating the costs of research from trading activity, resulting in a reduction in the quality of the former. This, combined with a buy side who on average cover 80 to 100 companies, is having a significant impact on smaller companies’ ability to access long-term capital and how they engage with investors.
For companies caught in the ‘MiFID maze’, the solution seems clear. Own your equity story, take control of your investor communications and manage your relationship with the market.
Investors will invest more in a company if they understand its story. Many businesses start investor meetings discussing their balance sheet, but given that over 80% of a company’s value is in its intangibles, this could well be a false start.
At Luminous, we engage with companies large and small, reviewing their investment proposition to make sure it best presents their offer and working with them to ensure their key messages are reflected across multiple channels.
In our experience, there are six building blocks to achieving a strong investment case. We recommend clients consider each in turn:
1. A concise statement of how the company makes money
Plainly and simply explain how the business makes money. What makes you different from your peers and competitors? What are the markets you operate in?
2. A clear ‘strategic roadmap’
Understanding a prospect’s strategy is high on an investor’s priority list. Outline strategic performance and strategic priorities over the short, medium and long term and show how success is measured through KPIs.
3. Clarity about future uncertainties
All too often, the risks disclosed in an annual report are generic. Instead, clearly outline the strategic risks, both downside and upside, in the context of the strategy and business model.
4. An analysis of current performance and future prospects
Detailing performance to date is simple enough. However, a good story needs to address the context in which the business operates and where the future drivers of value will come from. Discuss these in the context of the company’s strategy.
5. Dividend policy disclosures that are relevant to investors
Clearly explain why you have selected a particular policy and why it is appropriate for the business.
6. Demonstrate the quality of management
The strength of the management team is an important aspect of the story, yet it is often underplayed or presented in generic ‘all-our-management-are-highly-experienced’ terms only. Clearly communicate what the individual skills, expertise and experience of the C-suite are and how they are used in the delivery of the strategy and business model.
How to engage with capital providers
Face to face won’t go out of date. Businesses need to be proactive and have direct engagement with current and potential investors. Make use of investor roadshows and take more direct control of non-deal roadshows and company-hosted events.
Other channels, such as the corporate website, are an essential investor resource for an easily accessible outline of the investment case, along with annual reports, investor presentations, and social media announcements.
There are now more channels via which to engage with investors than ever before. It is tempting to excel in one (possibly for historical or in-house expertise reasons), but it is vital to take a holistic view across all your communications. Get your messaging right, be consistent and transparent, and apply it in the most suitable way for each channel and audience.