Investigate Your Investors: How Investor Relations Can Help Drive Long-Term Value / Written by Diane Fitzgibbons

Investor relations (“IR”) is the process of communicating with the financial industry, including investors, analysts, traders, portfolio managers and media. IR is the discipline designed to establish and maintain strong corporate reputations with the financial community. IR can assist with building strong relationships with shareholders, potential investors, and financial influencers thereby establishing credibility and driving long-term value.

Market volatility can cause shares of any stock to fluctuate wildly on any given day, and your shareholder base is always changing. Consequently, it pays to periodically put your shareholder base under investigation. Reviewing your SEC filings to identify your shareholders and understanding the investment discipline that institutional owners use to identify new opportunities is crucial.

Generally, institutional investors fall into several categories:

  • Momentum investors are focused on stocks that are moving quickly and have potential catalysts to drive the business forward. They are often in and out of a stock in a few days, or weeks, and are willing to pay up for a stock that is generating “buzz.”
  • Value investors, however, are more interested in the relative valuation of a stock and the long-term business prospects. Two of the most famous and successful value investors of all time are Warren Buffet and Benjamin Graham, who focused on deep value on the balance sheet and operating cash flows, strong management and viable business prospects. 
  • GARP (Growth At a Reasonable Price) investors fall between the styles of momentum and deep value buyers. Looking for Growth At a Reasonable Price requires fundamental analysis of the company’s business and relative analysis of the industry to find those firms that have better than average potential.
  • Income investors are another distinct group of people who are seeking reliable and potential growth in dividend income. In today’s low interest rate environment, both professional and individual investors are keenly interested in dividend yield and dividend security.

For all publicly-traded companies, reaching out to investors is one of management’s most important functions. Understanding the investment decision-making process for your shareholders will help you address their concerns in your published documents, on your website and in conversations with shareholders. More importantly, it can help you identify new investors who may own competitors or peers.

The professional investors that buy bank stocks are looking at three general areas:

  1. the quality of management,
  2. the economy in which the bank operates, and
  3. their strategic plan.
More specifically, they want to understand the risk management style of executive management, their banking history, and their experience in making acquisitions. They are looking for favorable market demographics and trends, with rational competition. They also look for a business plan that management has demonstrated their ability to execute upon and that differentiates them from the rest of the competition with consistency and quality earnings. Following hundreds of companies requires a highly efficient process, and investors appreciate companies that provide complete information in their earnings announcements.  I also suggest being specific about your strategic initiatives: What do you hope to achieve? What resources will you require? Why this initiative and why now? Simply stating that you are embarking on a strategic initiative is not compelling.

Keeping an open and active dialogue with all your investors is one of the key components of managing shareholders, including activist shareholders. While we know activist shareholders are out there, and we know they can be vocal on many issues, most shareholders are not looking for a fight. But when you are concerned about a potential activist, it is imperative that you engage with them. Activists, even the most critical and harsh, often have at least one or two good points. So, if an activist comes calling, I recommend that management teams listen carefully. Sometimes they have a good case that may need careful evaluation and consideration.

The first step i​n managing expectations of your shareholder base is deciding what messages you want to convey and what expectations you want the market to have for your company. Information about the profit drivers in your company, your competitive advantages, and the characteristics of your markets make up the non-financial part of your story. Keep in mind that not all investors will be familiar with the nuances of your market, so adding economic color to your slide presentations and press releases will help tell your story and help differentiate it. Additionally, if your bank has any kind of niche lending product that falls outside of the norm be prepared to talk about it. I work with a bank that originates manufactured housing loans specifically along the California Coast. This unique portfolio has different loan structures than a typical manufactured housing loan portfolio and requires additional explanation.

Address both good and bad trends that are impacting your performance and your future outlook. Discussing the fundamental drivers of your business will help investors understand the risks and rewards that are influencing your performance. And it will show them that you understand these factors and are working to manage your business proactively. Developing well-crafted messages on these topics are vital to telling your story, and are some of the most important issues that investors are looking at. There are many opportunities to deliver your strategies on these issues, including: communicating a clear strategy in your press releases, investor tear sheets, annual reports, industry conference meetings, presentations to investors and on your website.

“When we are looking at the best way to keep investor expectations rational, we aim to disclose not just the information mandated by the regulators, but also to provide the information people need to understand our business,” said Pete Johnson, President and CEO of Eagle Bancorp Montana, Inc. “We aim at providing historical data and discussing the factors that produced our results each quarter, while also discussing the underlying trends that are working both for and against us. We also try to talk about how we plan to build on our successes and what changes we want to make for improvements.”

Wall Street can be a noisy, fickle and a fiercely competitive place. Unless you are actively marketing your story, great performance can be ignored, misunderstood or chalked up to luck. Evidence has demonstrated that when executives consistently make decisions and investments with long-term objectives in mind, their company will generate more shareholder value, create more jobs, and contribute more to economic growth than do peer companies that focus on the short term.

While you cannot control the broader market sentiment for the financial services industry, you can address the concerns of your investors by focusing on building credibility, during good times and bad.

About the Author
Diane Fitzgibbons, President of The IR Group, has provided strategic investor relations counsel since 2004, serving more than 50 small and micro-cap firms. The IR Group is a national independent investor relations company and a leading consulting firm in financial market communications. The firm markets its clients’ stocks to Wall Street and provides investor relations counsel to companies throughout the United States. It helps establish and maintain corporate reputations with the financial community and are often viewed as a “third party” source of reliable information for investment professionals. Established in 1992, The IR Group (formerly The Cereghino Group) quickly developed a broad foundation of publicly traded community bank clients. The team has more than 100 years collectively, providing pragmatic and timely advice to public companies.

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