97% of companies when asked the question have your brokers discussed how MiFID II will change their role or have they been clear about changes? said “No” according to Orient Capital’s survey of 10% of the FTSE 350. “No, my brokers avoid the question.” (FTSE 100 respondent). The report is available on the IR society website and can be dowloaded here
And now according to IR Magazine’s Small cap IR Q&A Webinar on 12th April 2018 – Companies with a market capitalisation of £250-500m have less coverage post MIFID II, lots of these companies are finding they have to pay for analyst research. Though in reality they have always been paying for research if they don’t have high liquidity, now, post MiFID II they know the real price. Historically research has been used as the part of the old service bundle to protect margins i.e. if the client negotiated a lower broker retainer…then perhaps they often just got less research, because the funds were simply no longer available to maintain consistent coverage.
Lack of analyst coverage means companies need to talk to people, go on the road more often, use brokers and other IR resources to get liquidity up. CEOs/CFOs need to spend time engaging directly with investors but is this a valuable use of their time, when in fact they should be running their companies on behalf of the investors? The inference is that now companies have a price mechanism for research they should be using that to reduce the amount of time they have to spend chasing and talking with investors trying to drive up liquidity themselves.
The webinar also confirmed what we know in respect of the Microcap end of mkt – it has always had poor coverage and this will only continue to get worse post MIFID II – unless of course Micro-caps do something about this to stem the tide.
Existence of background research is useful, investors aren’t looking for buy/sell recommendations (broker reports) but background info on a company where stories are well articulated and backed up by data driven, evidence-based research (and forecasts leading to a valuation statement rather than a call to action i.e. buy/hold/sell – in my view the key here is that the research is as high quality and as dispassionate and so credible as possible. We need to ensure MiFID II isn’t disadvantaging the micro-caps, which are vital to the current and future economy.
IR Magazine Webinar – Small cap IR: Q&A with the Investment community on 12th April 2018 http://events.irmagazine.com/smallcapeurope/