New analysts

We explore the best way to initiate coverage from setting the stage, through to first contact and vetting the initiation report.

New analysts

In the relationship between an IRO and an analyst, the process of initiating coverage stands out.

How do you initiate coverage?In the relationship between an IRO and an analyst, the process of initiating coverage stands out. Experienced IROs know the crucial period when a new analyst is being introduced to the company and senior management can not only set the tone for how the analyst views the company, but also sets the framework for how the analyst works with the IRO and the company on an ongoing basis. It’s a mix of courtship and negotiation on both sides – and it should begin even before the first conversation. And as a small-cap German healthcare IRO points out: ‘For initiation and major fundamentals, more time is allotted than for quarterly updates.’Setting the stage

With a comprehensive library of materials on the IR website, the company’s led documents, information kit and web presence should provide the basics on its products, markets and management. Even better, include a discussion of the industry and competitive landscape.

The most recent analyst meeting materials and previous earnings transcript or audio replay should be easily found and accessible on the IR website.

First contact

Initial conversations are always with the IRO, who can ll in gaps on product lineup, company history and industry dynamics. This is particularly important if the analyst is new to the sector or the rm has businesses outside the analyst’s main industry focus. That way, when the analyst meets with the senior team, he or she can talk strategy and vision, not last quarter’s results.

When analysts reach out to initiate coverage, they should already have immersed themselves in the basics of the company. If they haven’t taken that first step, experienced IROs will insist they do their homework before scheduling meetings with senior management.

What’s an analyst’s coverage universe, experience level and reputation? What is the rm’s reach in terms of banking and buy-side relationships and how does that map with the company’s profile and needs? Finally, the IRO needs to come to some judgment about the analyst’s staying power. A new analyst at a small rm may well move up to a larger rm, so should not be ignored based on where he or she sits today.

Vetting initiation report

Most sell-side firms provide descriptive portions of the initiation report to be fact- checked for accuracy but withhold financial projections and recommendations. Companies have a binary decision on vetting the initiation report. Some will review the report and make comments, others will refuse to, wanting to keep an arm’s-length relationship – and accept the risk of inaccuracies being published. The decision is an important one that needs to be followed consistently. Needless to say, the vetting process needs to be thorough and conscientious.

Should you discourage analysts from covering?What if the analyst does not seem a good t? Globally, only a small number of IROs (7 percent) report actively discouraging an analyst from picking up coverage.As one US-based mid-cap consumer sector IRO reports, added coverage makes it ‘difficult to manage in terms of time, message and corporate access, so I am very honest with analysts prior to launching coverage that they will receive little corporate access.’A second consistent theme is quality of the research effort or concern over the ethics of a particular analyst. Another US IR professional from a large-cap industrials company describes a previous relationship with one particular analyst ‘who clearly was following us in name only... mainly to be able to be on CNBC if it were to call.’ The third reason IROs give for discouraging coverage relates to the lack of influence or value the analyst or rm would bring to the IR program. A mid-cap Canadian utility IRO describes a ‘deal syndicate already crowded, [with] marginal incremental banking, trading or investor audience value to be gained.’