Issuer Guidance: Key takeaways from investors and analysts — from the IHS Markit Perspectives Series
TMX Podcast: IR & Disruption
Preston Gelman, Director of Research & Analysis within IHS Markit’s Perception Analytics Group, shared his recent findings with listeners on a TMX Podcast that covered the topic of “IR & Disruption”.
At the time of the recording, over 500 NYSE issuers and 100 S&P companies had pulled guidance in their Q1 2020 earnings calls due to business disruption from COVID-19 — and feedback from the series revealed that the market had generally accepted that. However, Gelman points out that analysts will continue to model companies with or without guidance, and therefore, transparency is critical. The key takeaway from a study of 60 investors and analysts: Issuer uncertainty drives investor uncertainty, which drives discounted stock valuations.
What was apparent to the investors and analysts studied, was that companies had not properly prepared for business disruption on their balance sheet. As a result, the market is looking at 3 common themes heading into the rest of 2020:
- Technology: The need for virtual engagement. Has the issuer adapted to the use of technology in order to effectively communicate and present management to investors? Face-to-face interactions may go away for a period-of-time, but virtual meetings can allow for intimate settings as well. Body language can still be revealed, and personal connections can be made. Further, virtual meetings can be delivered with greater efficiency into the marketplace.
- Business Model Stress Test: Has management effectively tested the strength of their balance sheet against business interruption? What are the cash flow and liquidity expectations? Where are the revenue pressures? Are there opportunities to lower fixed or variable costs? What parts of the business model will not be impacted?
- Scenarios and Economic Recovery Timing: Has management presented best case, worst case, and base case scenarios against the timing of economic recovery?
Difficult market periods are the best opportunities for issuers to differentiate themselves and establish long-term trust and credibility with their investment communities. To hear the complete IHS Markit Perspective Series on TMX’s “IR & Disruption” podcast: