African Investor Relations

The JSE is still going to find the going tough. The liquidity is just not there, the markets are still scrip based, exchange controls etc. But its the political side that is the real barrier. The negativity that the South Africans attract in African markets is not fully appreciated by the South Africans and its difficult to see what benefit a JSE listing will bring other than increased profile (at an increased cost). Commissions and fees  will accrue to the SA market irrespective of what is said.

The correct approach would be for the SA brokers to forge alliances/ invest in the African brokers, learn the local lie of the land, sort out the research functions and play the game in the country of origin. Just like the Flemings model in the late 1990s. The countries consulted Kenya, Nigeria, Botswana, Ghana, Namibia and Mauritius all have good reason to be suspicious of SA’s intentions but conversely the conduct and regulation of the broking industry (in Kenya and Nigeria) does need significant improvement, but a listing in South Africa will not change this.

Some reasons why the JSE wont work:-

- not enough liquidity

- cost

- exchange control

- domestic overvalued equities (compared to regional peers)

Possible advantages of the JSE initiative include the ability to raise capital outside of the clearing and settlement etc of local markets.

From our IR perspective listed companies are just as able to obtain an increased profile using the web. Primary listed companies should look inward to sorting out how the stock exchanges that represent them should get their acts in order.

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I attended an investment conference recently and asked institutional investors how they obtained information on listed companies in Africa. The response was that they just called the management and asked the questions they wanted like, just before the release of the annual results or interim results,  ”are there going to be any surprises?” They receive the response they want most of the time and thats that. The same can be said for other material information requests.

Yes there are two levels of information generally and with regulation of this sort of thing being poor, the opportunity presented to directors of listed companies who do take their communications obligations seriously are significant. As an institutional investor extracting non-public material information from a listed company and having just put down the phone to the investee company, would you not think to yourself “what has management told other investors that they have not told me”.

The issue for listed companies in Africa is to adopt a disclosure policy, apply it, tell the investment community and show tangible evidence of this. This is the way to enhanced reputation and reducing the perception from the investment community that there might be a few surprises. The result: a lower discount rate as one percentage point is removed for consistent, reliable, transparent and meaningful financial reporting.

What does the heading of this blog have to do with this? In order for information to be deemed to be in the public domain it has to be available on an immediate, non-exclusionary and broad basis. Namely a newswire service post, submission to the stock exchange, or a webcast. Forget newswires and webcasts in Africa for the moment – how gooder job do the stock exchanges do – just check out the websites and see how many products are available for investors to receive news immediately. Very few.

This is an opportunity for listed companies.

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Our clients drawing a diverse community of interested identified stakeholders (over 6,000 at the last count) to their websites and the responsibility of managing these contact details is becoming apparent. It’s not easy. Contact details should always be complete and accurate and we have found that the best time to do this is as soon as investors register in the investor relations section of your website. Thereafter an annual email blast asking for updated information should suffice.

Once correct details have been recorded (our software enables our clients to choose what information is needed in order for investors to register) the investor categories can be used to great effect. The ability to immediately discern and communicate with the media, analysts (buy side or sell side), individuals, shareholders at the press of a button (say upon the release of significant news, corporate actions etc) is key to saving time and money.

Our clients are also realizing that the compounding effect of corporate communications in brand enhancement and investment case dissemination can be significant. For example one client of ours has 500 registrants registered to receive the daily share price alert. On average 250 investors open these emails daily so in an average month of 20 trading days, our clients’ investment case and brand is exposed 5,000 times.

In addition, each time the community to which the email is addressed opens an email they have the opportunity to communicate with management and send their feedback. They do, with interesting results. This direct form of communication requires an immediate response and the benefits of having automated communications and a friendly IR firm to assist really enhances corporate brand and reputation.

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I have been involved in two IPOs where our software solution has been used to great effect to identify the investors interested in our client company. African IPOs are beautiful in this respect – huge demand and interest and an amazingly strong following from the diaspora.

A few statistics of interest relating to effective online IR at IPO stage (extracted from our clients and are indicative of course):  Online IR at IPO stage

• attracts 3 times the number of visits to your website than an established company in the first year post-listing
• generates visits from investors in 30% more countries than an established company websites in the first year of listing
• have 30% less time-on-site because of the absence of historical information BUT
• typically attracts twice the number of unique visitors to your website than an established company in the first year AND will attract twice the number of page views on your investor relations website
• have 30% less pages per visit because typically the absence of historical information, this reverses over time

During the IPO the ability to immediately communicate with the market (allay their fears about shortages of prospectuses or delayed timetables, IPO results etc) occurs at the press of a button. The ability to receive feedback immediately can really help avoid disasters and enable you to change the structure of the transaction administration or communication to avoid those little things that blow out an IPO – just ask some of the big advisory players that have implemented IPOs in Africa – there’s always one or two things that go wrong.

I have lead managed 5 IPOs personally and the comfort that you get being in control of the IR function online in the advisory funtion is huge. The PR and marketing agencies are secondary players as opposed to perceived primary players (in the absence of an online solution where the advisor is more in control of the IR / media function.)

Both IPOs I did also obtained regulatory approval to have application forms delivered with softcopy prospectuses. The legal issues associated with distributing application forms without prospectus is a significant legal one given the massive market scams of the South Sea Bubble etc.

How did we give the regulators comfort in our product?:- provided a SOX compliant online shareholder communications platform: the full audit trail that shows the investor reaceived the prospectus with the application form.

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