IR Fundamentals

Tangible benefits

It is a fact that an efficient Investor Relations (IR) function generates a higher valuation in a company’s securities; at least, between 10-15% (according to NIRI, “National Investor Relations Institute”).

Suppose this benefit was generated for a specific issuer (obtaining 15% of incremental valuation), thanks to a transition from an intermediate IR program (only focused on financial reporting and regulatory compliance, without proper communication of its investment thesis), to a premium IR program (focused on identity and image, strategic message and intelligence, and lobbying). Now, assume that we are talking about a small cap issuer (market cap of US$1 billion) and that, capitalizing on the incremental valuation, it will execute a successful go-to-market, i.e., a secondary public offer of 20% of its equity, thus, derived from the positive momentum, this company would receive the following benefits:

US$30 million liquid resources from the offering; and US$120 million from the “mark-to-market” effect generated by the higher valuation of the remaining 80% equity.

Effective solution

This is a clear example that there are few investments as profitable and tangible as the execution of a premium IR program, without internalizing the benefits associated to the cost of debt.

rentable

Continuing with the exercise, suppose that the successful transition of the issuer’s IR program is 50% due to the effective solutions provided by an expert consulting firm, such as IRStrat, during two years of service, with a cost of US$250,000. Therefore, the return on investment (ROI) would be 59.50 times, only from the liquid component of the benefits (US$30 million). This example clearly highlights the advantages of a premium IR program, constituting a competitive advantage.

Strong evidences

The efficient IR management leads to an appropriate visibility, and an appropriate visibility to a wider analyst coverage, and in turn to an improved trading (measured in terms of liquidity):

The improved trading and liquidity lead to the market opening, i.e. the existence of competitive prices and volume depth for robust placements that results in a high level of trading volume; thanks to a greater floating in the market, derived from the virtuous circle generated by the implementation of premium IR practices.

Executing solid IR practices is certainly an effective method for gaining a solid market positioning and generate tangible effects in valuations and funding sources.