Tackling the future in times of crisis

Through tough times financial analysts crave one thing more than most: reassurance. For companies, providing reassurance would be a mutual exchange to quell panic in the market, for the sake of their share price. So, how best to fulfil this shared interest? At least part of the solution relies on the flow of information. Companies need to communicate their short, medium and long-term in a way that will reassure financial markets - and this involves packaging important pieces of future-looking content onto their corporate websites.

121 international analysts and investors responded to Comprend's Capital Market Survey 2020 from February until April as the COVID-19 pandemic was taking hold across the world. Compared with previous years, their answers showed a notably higher interest in seeing companies address their forward-looking plans on the corporate website. Content offering insight into how companies are viewed externally increased in importance too. Let's take a look at some of the specific areas leading the spike.

Short-to-medium term: estimates offer a view of the year ahead

Sharing both individual analyst estimates and consensus estimates on the corporate website offers a good barometer of the market's appetite for a company's stock. The importance of estimates has recently increased, reflecting that in periods of financial turbulence a professional insight into the year ahead is even more valuable than in times of stability.

Average importance of individual estimates across the last five years
(1 = Not important at all, 5 = Very important)

Line graph. The X axis contains the years 2016-2020. The Y axis runs from 3.00 to 3.30 on the 5-point importance scale. The line starts close to 3.00 in 2016, increases to nearly 3.30 in 2017, dips in 2018 and 2019, before rising again to 3.20 in 2020, although not at the same high level as 2017.

Average importance of consensus estimates across the last five years
(1 = Not important at all, 5 = Very important)

Line graph with the X axis showing years from 2016-2020 and the Y axis showing numbers from 3.30 to 3.70. The line starts around 3.48 and rises and falls over the next 3 years, before in 2020 clearly increasing up above 3.60.

Companies often fall short of their consensus-earnings forecasts, and unless this is a very consistent pattern it doesn't automatically hurt the share price. As such, the numbers and recommendations that make up the estimates are not necessarily all that matters. Simply including them on the corporate website speaks volumes about a company's confidence. A company willing to openly broadcast external assessments to the wider market is one with a constant eye on the next quarter. Only 57 of the 896 companies ranked in Webranking by Comprend 2019-2020 presented both individual and consensus estimates, so there's definitely room for improvement in this area of corporate communication.

Outlooks are another key indicator of company direction

Sharing your company's financial outlook is a great step to take, as an overwhelming majority of this year's Capital Market respondents value this piece of information. Analysts want to see an overview of where a company is and where they expect to be in the near future so they can quickly judge the short to medium-term investment potential. An outlook should serve as a summary of the financial goals and the strategy, with statements looking at the year ahead indicating the company's direction in terms of sales, revenue, profit and other aspects. These statements should be presented along with the market outlook for regions where the business operates, to show the company's awareness of outside factors which could affect performance.

Finnish industrial company Valmet present a financial and market outlook on a yearly basis and update it if the situation demands - as has been the case in 2020. Their market outlook now includes a COVID-19 section, in which they have revised guidance for their sector's expected performance this year. They have also re-iterated a good outlook for Valmet's business areas, offering much-needed reassurance to their investors. Whilst this is a neat example of a company dealing with a difficult situation head-on, others may adopt a more cautious approach. Depending on the business, it may be better to delay an outlook update to a time when more is known to avoid speaking too soon on unpredictable matters.

...of Capital Market professionals consider a company's financial outlook important.

The long-term: a risk management system is a vital safety net

For many years we've asked analysts for their thoughts on the importance of risk management information, and for many years they've ranked it as a key part of an IR section. This year we decided to ask the question differently, to identify which risks hold the greatest importance. The order of the results doesn't throw up many surprises, although the importance placed on the top end was even larger than expected. While all risks are important to address, those relating more fundamentally to the company's performance carry higher priority.

The most important risk management information

  1. Financial risk
  2. Operational risk
  3. Strategic risk
  4. Regulatory risk
  5. Environmental risk
  6. Health and safety risk

Companies that comprehensively cover their risk management processes will look far better placed to mitigate against each one. A proactive approach to risk will offer particular assurance to investorsas the global economy enters uncertain territory, with the International Monetary Fund (IMF) anticipating a 3% contraction of the world economy in 2020 - far worse than that experienced in the 2008-9 financial crisis.

An investment case should allay fears and build confidence

Every corporate website should include an investment case, and this is more important for today's analysts than it ever has been before. The investment case should answer the question "why invest?" by showing how the company will build long-term value for its shareholders. It is therefore a great opportunity for companies to offer a window into their future. 

Average importance of the investment case since 2011
(1 = Not important at all, 5 = Very important)

Line graph. On the X axis is the year from 2011 to 2020. On the Y axis is 3.10 to 3.90 on the 5-point importance scale. In 2011 the line is not far above 3.10. It steadily climbs towards 2015 and then starts to more sharply climb as we reach 2020, where it sits close to 3.80 showing a greatly increased importance over the last decade.

The investment case has an important role to play in easing the insecurity of the current climate, which might explain why it has scored so highly this year. Ideally, it should present examples of how the company will keep earning money in a recession.

Follow the recommendations to ease stakeholders through market volatility

Financial markets have always rebounded from so-called 'Black Swan' events like COVID-19, but at the same time it's only reasonable for analysts and investors to worry about a more prolonged recovery. The onus is on companies to supply a range of content across their investors site - from estimates to planning systems - to demystify their short, medium and long-term future. A company which does this will stand above the parapet as both trustworthy and robustly prepared to face the uncertain world. While many other factors will play into investment decisions beyond what's on the corporate website, clear communication is certainly a good start in showing your company to be a safe bet.

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