The do's and don'ts during Covid-19
A third of companies have changed their targeting strategy as a result of Covid-19. This is most common among European companies and least common among Asian firms. There is no notable difference according to company size as to whether they have changed their strategy.
'More focus on targeting. By not traveling, we have fewer group meetings and have to stay on top of how often we are speaking with top holders and targets' – head of IR, US, consumer discretionary
'Given less interest from new investors in this environment, we are trying to hone our messaging with existing investors and reiterate our long-term strategy' – head of IR, US, financials
'We still target the same kind of investors, though we proactively reach out to investors that were previously interested but waiting for opportunity' – head of IR, Switzerland, consumer staples
'Direct contact instead of brokers' – head of IR, Germany, materials
'Slight change as we now look for longer-term investors in new and existing geographies that like the longer (beyond Covid-19) story' – head of IR, Ireland, materials
The majority of investors and analysts have changed their investment approach as a result of Covid-19. While 44 percent have adapted their approach for the short term, one in 10 says Covid-19 has altered the investment approach for the long term.
In North America there is a 49/51 split between investors and analysts who have changed their approach and those who have not. In Asia, approaching two thirds of the investment community have changed their approach.
‘Cautious short term, but focusing on long term’ – sell-side analyst, US
‘Contingency and sustainable plans must be established for the long term’ – fund/portfolio manager, US
‘Focus on Covid-19 has insulated sectors and investments’ – fund/portfolio manager, Europe
‘Focus on financial strength, no debt’ – fund/ portfolio manager, Europe
‘I am typically a long-term investor and don’t trade much. Now I have to trade more purely due to the volatility in the markets and the level of uncertainty' – fund/portfolio manager, US
‘I buy stocks in downturns and there are a lot of companies to look at. Investing in those with large turnaround potential’ – fund/portfolio manager, US
‘Less reliant on fundamentals, more on momentum’ – buy-side analyst, Asia
‘Looking for investment opportunities where stocks have been sold off based on sharp decline in business due to Covid-19’ – buy-side analyst, US
‘Market reset in certain companies and sectors has boosted the number of companies that could potentially have increased margins of safety’ – buy-side analyst, US
‘More focused on short-term trading and trying to rotate capital’ – buy-side analyst, Asia
‘More trading activity, focus on cash and balance sheet, focus on risk mitigation. Less position concentration, more cash’ – fund/portfolio manager, US
‘Much greater concerns for liquidity and bankruptcy as well as structurally different winners and losers’ – sell-side analyst, US
‘No real change as I am fundamental in my analysis and so focused on quality stocks’ – fund/portfolio manager, Europe
‘Outlook for oil and gas is much more uncertain due to significant drop in demand. It is a short-term issue, but I assume it could also have impact longer term. I am now more positive on some defensive stocks’ – sell-side analyst, Europe
‘Refocus on visibility and operating cash flow, and increased focus on leverage’ – fund/portfolio manager, US
‘For now, we are staying out of travel, tourism, restaurants, hotels, airlines, energy and banking, and avoiding high-yield debt exposure’ – sell-side analyst, Europe
‘Short term, looking for companies that will benefit from Covid-19, or at least not have material negative effects. Strong balance sheets are much more important’ – sell-side analyst, Canada
‘Tail-risk protection is highly undervalued when considering existential threats to the business’ – buy-side analyst, US
‘The value of certain sectors – travel, leisure, hospitality, and so on – have permanently changed’ – sell-side analyst, US
‘Waiting until volatility recedes and normal growth investing returns. Staying sidelined in risk environment’ – sell-side analyst, Europe
We have become short-term investors’ – buy-side analyst, Europe
‘Willing to hold more cash. More balance sheet-focused’ – fund/portfolio manager, US
‘Short-term focus: liquidity. Long-term focus: ESG’ – sell-side analyst, Europe
When investors are asked what they want to hear from companies during this pandemic, there is no one specific answer that stands out. Clearly, they want to know what impact Covid-19 is having and what measures companies are taking in response.
Issues here include how exposed the company is and what costs are incurred, plus the effect upon employees, supply chain and customers. Additional key topics are balance sheet issues, liquidity, solvency and financial sustainability during an ongoing pandemic.
Investors want to hear about long-term prospects and what plans there are for post-pandemic recovery, as well as how companies’ long-term strategy will change as a result of Covid-19, what their plans are for customer retention and what opportunities there are for business and sustainability in the post-pandemic future.
‘Actions taken to protect workforce and customers, and immediate actions to protect balance sheet’ – fund/portfolio manager, Europe
‘Actual data observed by the company that illustrates the impact Covid-19 is having on the business’ – sell-side analyst, Canada
‘Cost and capital discipline, ability to take advantage of opportunities in a difficult market’ – sell-side analyst, Europe
‘Just be transparent on what is happening internally in the business, whether operationally or strategically. More frequent contact with the market along with transparency should improve investor confidence to invest in the company’ – buy-side analyst, Australia
‘How the recovery after the pandemic will be used to shape the company for better sustainability’ – fund/ portfolio manager, Europe
‘How much sales have fallen. And provide as much guidance as you can. Compare yourself with competitors regarding what they are doing to respond to the crisis’ – buy-side analyst, Asia
‘Liquidity, longer-term strategy changes, opportunities that arise due to the pandemic, innovative thinking’ – buy-side analyst, US
‘Managements need to be transparent about recent trends and changes to their strategy, and make themselves available to investors’ – fund/portfolio manager, US
‘Measures taken to protect employees, impact on profits in the short and the long term’ – buy-side analyst, Europe
‘What they are doing to keep their employees engaged while not employed. How they are restructuring to operate in a more digital world that will likely have less globalization and more financial disruptions’ – fund/portfolio manager, Canada
‘Provide the best guidance they can. No guidance should not be an option’ – sell-side analyst, US
‘We want to hear how companies’ business practices allow them to remain resilient for the long term. This generally includes respect for employees and supply chain, attention to environmental issues that may impact business, and sound corporate governance to lead’ – buy-side analyst, US
‘The impact on their business and how much management has cut salaries if the company has been hurt by the pandemic’ – fund/portfolio manager, US
‘Very few companies have any visibility, so the key way to instill confidence is by showing they have done enough work and scenario planning’ – sell-side analyst, Europe
‘What their major problems are in getting their customers back, what they can do to overcome these problems and, if they can’t overcome them, how they will stay open’ – fund/portfolio manager, US
We asked investors what common mistakes IROs can make in communicating during this pandemic. The key mistake is to not communicate and replace the lack of sure guidance with silence.
As with every crisis, communication is vital. During this pandemic, every company is to one degree or another in a crisis and investors are respectful of this. Being too optimistic or showing a lack of concern may prove to be counterproductive. Attempts to hide negative information will not fool the skeptical investor.
A few investors warn against being too pessimistic and too bearish in outlook. While they require a realistic account of the problems faced, they want a pragmatic approach, not a counsel of despair.
‘Avoiding the topic, withdrawing guidance for conservatism. Investors value companies that can offer articulate insights into their scenario planning and continue to provide financial guidance’ – fund/portfolio manager, US
‘Being very pessimistic during the pandemic, then optimistic after reopening’ – buy-side analyst, Asia
‘Delayed communication: be quick to engage even if it is not a complete update. Observations and actions taken to date are still useful’ – fund/portfolio manager, Europe
‘Excessively focusing on short-term Covid-19 issues’ – fund/portfolio manager, Europe
‘Infrequent or reactive communication with analysts, saying it is too early to tell the impact – make an attempt or help bridge the gap! Being backward-looking rather than forward-looking’ – sell-side analyst, Canada
‘Focusing too much on short-term disruptions, taking on debt, believing the previous environment will return, letting culture and ethical standards slip’ – fund/portfolio manager, US
‘Giving up on any guidance and not disclosing company’s response regarding the pandemic’ – buy-side analyst, Asia
‘Need to mix it up and try new tools and styles’ – sell-side analyst, US
‘Not being candid about the challenges being faced, being emotional or overly patriotic’ – buy-side analyst, Europe
‘Not talking to the investment community. Giving unrealistic guidance where true estimates are not possible’ – buy-side analyst, Asia
‘Not communicating: being not specific enough or being overly optimistic’ – sell-side analyst, Europe
‘Removing guidance and saying they have no idea what the future will bring’ – fund/portfolio manager, US
‘Failure to be bold’ – sell-side analyst, US
‘Saying all is OK without the slightest sign of concern’ – fund/portfolio manager, Asia
‘Trying to deflect attention away from the current situation by resolutely focusing discussion on the long-term growth drivers of the business’ – buy-side analyst, US
‘Trying to give guidance; being too optimistic and/or overpromising’ – sell-side analyst, Europe
‘Underestimating the future’ – fund/portfolio manager, US
‘Withdrawing guidance shouldn’t equate to withdrawing from discussion of current business conditions’ – fund/portfolio manager, US
