MIFID II – THE MOMENT OF TRUTH

by Emma Burdett | 1st December 2017

2018 is imminent and so is MiFID II – are you ready? Have you budgeted? Does your IR strategy allow for a totally new playing field for corporate interaction with investors? Will your market capitalisation work against you? Time has run out for hypothesis – it’s time to meet this challenge head on, to protect your valuation, market profile and investor base.

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Does management know? MiFID II will transform the challenges faced by IROs and finance departments every day, but it has deep-seated relevance for management across the board. Its implications need to be budgeted for, and management need to be proactive in dedicating the time and focus needed to keep their company firmly on the investor’s agenda.

Have you relied on your broker for investor access? This is going to change. Roadshows in the UK can no longer be free of charge from brokers, so investors are set to look for other cost efficient options. They are increasingly likely to contact you directly, for answers to questions, for management access, for meetings. This will require substantial resource. You will need help from third party consultancies. The new regime should shift the focus to really strategic investor targeting and interaction, so in-depth knowledge of your share register is key. It will be essential to protect the diversity of your shareholder base, to ensure liquidity and to manage volatility – these may be impacted by the move towards a much narrower sell-side community and more concentrated trading activity.

What is the outlook for your sell-side coverage? The unbundling of research and trading commissions means that research departments will need to justify their existence. They may focus on highly liquid, large cap stocks owing to internal commercial priorities. The analysts may become more subversive in order to carve a niche and they may also be forced to spread their research efforts across more than one sector as numbers diminish. Preview notes and detailed sector analysis may become a thing of the past. Good news for nurturing a longer-term investment perspective perhaps, but potentially bad news for mid / small cap companies, who risk losing faithful supporters and may fall off the investor’s radar unless they seek the help of independent research houses to ensure representative coverage. Companies of all sizes will do well to focus on analysts with the best understanding of their particular industry and business, as well having a good sense of their influence – which investors are paying for their research? There will also be room for surprise from new market entrants producing specialist research for investors.

How will consensus be formed? As buy-side analysts take up some of the onus of coverage, will they be willing to share their forecasts? It may be challenging to secure a meaningful benchmark of expectations for your results. Third party data providers will find equity research behind paywalls harder to access, making their consensus numbers more volatile and unreliable. Taking responsibility for compiling your own consensus against the backdrop of a more disparate sell-side and a new relationship with the buy-side may be the most effective route. Ensuring that forecasts do not stray into abstraction removed from the real dynamics of your business will be an issue, as analysis becomes more thematic and sporadic.

How effective is your messaging? Analysts who are more stretched and covering a broader universe of stocks will want really cogent messaging, with a clear investment case and critical path for performance which should underpin your valuation trajectory. So the investor presentation, IR website content and key announcements will need to be dynamic, succinct, and in context, to make sure your story is heard in an even more competitive environment. You will need to be sure that how your company is presented chimes with buy-side priorities. Worth a fresh look, and a more dynamic approach.

Do you have a grip of how the market perceives you? Understanding how your key audiences will be operating under MiFID II and how they regard your company is essential to continued success with effective IR. Incisive outsourced benchmarking work can pinpoint how you can remain relevant, properly analysed and taken seriously as an investment proposition, and feedback should now be seen as a strategic litmus test measuring the impact of your market interaction.

MiFID II is a game changer and it is up to every company to embrace its real implications and take control. The public face and ownership of your company is, now more than ever, in your hands. Time to take stock, ensure you have appropriate advice and get into gear.

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About the Author

Emma Burdett

eburdett@maitland.co.uk

Worked at Maitland/AMO for 10 years and sits on the Board of the Investor Relations Society and is also Chair of the Policy Committee

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