New Zealand IR Update 2019 in Review

The Australasian Investor Relations Association’s recent NZ IR Update event, held at PwC’s Auckland offices was particularly well attended this year, in light of NZX’s new code and the current dynamic investor relations environment.

At the start of the conference, AIRA CEO Ian Matheson noted seven central themes in investor relations globally:

1. ESG is a game changer for companies and shareholders.
2. Stakeholders count as much as shareholders.
3. Technology, social media and millennial investors will have increasing influence on corporate communication.
4. Activism is an established market force.
5. Engagement creates opportunities for businesses.
6. The buck stops with the board.
7. Regulation is opening the door to new technologies and reducing costs – or is it?

During the session on trends in capital markets, Forsyth Barr Asia’s Hugo Fraser outlined some of the main trends impacting IR, including global trade tensions and the interest rate cycle around the world, including more accommodative central bank policy.

Hugo also noted that, while the Kiwi equities market is among the best performing in the world, it is relatively expensive, trading on a multiple of 23 times forward PE. He attributed this outperformance to NZ Inc’s strong brand, underpinned by the relatively higher yields available in this market.

Nevertheless, he noted there is a dearth of IPOs in the Kiwi market, although the M&A market is relatively robust, with offshore players cherry picking New Zealand companies contributing to NZ$11 billion in transactions in 2018. So far this year there have been NZ$4 billion in transactions, with the Infratil deal one of the most noteworthy.

Hugo noted the increasing prominence of ETFs making IR more challenging, including the recent introduction of NZ Smart Shares. As he said, “it’s hard to engage with a machine.”

As Hugo – as well as many other speakers – emphasized, ESG issues are of growing importance to shareholders. This bodes well for Kiwi companies, given sound corporate behaviour and high levels of accountability.

International investor conundrum

During the second session facilitated by SkyCity’s Ben Kay, Simon Weston from AXA Investment Managers and Warryn Robertson from Lazard, highlighted how difficult it is for global investors to take meaningful positions in Kiwi companies given their relatively small size and illiquidity.

As Simon noted, an investment decision, “comes down to the company, the opportunity and the quality of management.” He said investors tend to focus on sectors in which New Zealand has a competitive advantage, such as travel, tourism and agriculture.

Warryn cautioned against the Kiwi public sector’s propensity to maintain ownership of privatised assets. He suggested New Zealand needs to address the government’s inertia to exit public assets if it wants to embrace public market ownership. “The role of capital markets is to provide funds but many businesses don’t need capital funding.”

This session also highlighted changes to the broker dealer model in light of the MiFID II regulations, which is changing the way investors engage with corporates and brokers.

Simon said IR needs to be, “more willing to assist the buy side” and, “that part of the role will become more important over time.”

ESG gains prominence

During the session on ESG, PwC director Annabell Chatres raised the notion that reducing ESG to an acronym means its three components lose power. “ESG is neutralised through the acronym,” she said.

The session explored the changing notions of value and risk from integrated reporting and the need for a more holistic view of how to value companies, echoing Ian’s initial insight on the shift from shareholders to stakeholders and the rise of the non-financial elements of a business.

The remainder of the day included many pearls of wisdom, including the danger of shoehorning organisations into the integrated reporting framework. Speakers talked about the dangers of reducing company activities to merely dollar values, given not everything can be described in financial measures.

During the session on the interrelationship between the IR and the CFO function, Genesis Energy CFO Chris Jewell talked about the value IR brings to the table when clarifying the business’s narrative. “It’s not until it’s road tested with investors the story comes together", he said.

In the same vein, delegates learned that garnering buy-side support for the share price is all about properly communicating the story and strategy. As Chris said, “The business, customer, brand and investor strategy all have to come together. When you talk about strategy, you need to understand what you are and what investors want.”

On a practical level, he suggested IROs give investor meetings a rating based on how interested they appeared, how likely they are to invest and whether they are interested in your peers.

Other tips included:

• Even if you get a grilling at an investor meeting the investor may end up on the share register.
• There’s value in going back to basics – tell investors what you’re going to do and do it.
• Investor days are an opportunity to develop the IR narrative.
• IR done well can help a company crystallise strategy.
• Investors want you to get really good at one thing – while management want to grow the business – and the right thing for the company probably lies somewhere in the middle.
• Investors want ‘bench strength’ – a strong management team and alignment throughout the business.
• Investors are all different – some are fundamental and others buy in just because they like the CEO.
• At investor days, apportion time based on what’s important to investors – and don’t drop any bombs.
• So … decouple trading updates from investor days – because if the update is negative, it’s difficult to get your strategic message across.
   

Click here for photos from 2019