Best Practices For Managing Investor Expectations

Unexpected news, whether viewed as positive or negative, can impact investor expectations, shareholder engagement and stock price.

At this year’s CIRI Annual Conference, Co-Founder and COO of Irwin, Mark Fasken, moderated a discussion with IROs, about times they have exceeded or fallen short of investor expectations through various events such as a management change or updated guidance.The panel shared insights on how they communicated the update to the Street, managed the fall-out and maintained a steady course along the way.

Meet the Panel 

Brian Christie, Vice President, Investor Relations, Agnico Eagle Mines Limited

Karen Keyes, Head, Investor Relations, Canadian Tire Corporation

Calvin Locke, Manager, Investor Relations, Keyera

In order to manage investor expectations, you need to be aware of what they are first. The panel shares tips on how they track investor sentiment. 

How to understand investor sentiment

Karen shares how she analyzes investor sentiment from a quantitative and qualitative perspective. 

From a quantitative point of view, Canadian Tire does consensus estimates for current and future quarters at an EPS level. They also do a consensus gathering exercise by the sell side to gain an understanding of how people are building their models and to monitor movements through a quantitative lens. 

From a qualitative point of view, they make a regular effort to engage with their investors and analysts outside of regular meeting cycles to try and gain a better sense of what’s changed, and what they’re hearing. 

Some good ways to understand what your investors are thinking about your company: 

• Reading investor newsletters 
• Get on analyst list for peers 
• Watching sector M&A
• Read the newspaper 

Brian shares how he tracks investor sentiment through a market surveillance group that monitors shareholders movements, while reinforcing Karen's points to get involved and engage with shareholders through meetings and multiple touch points. 

Staying on top of trends & the value of perception studies 

Staying organized and being able to reference key topics and trends from your investor meetings are important to understand investor sentiment. It’s important to understand what the Street is saying, and what your company needs to address. 

Karen shared how she takes note of key topics that have come up during shareholder meetings for the quarter, in addition to perception studies they run, so that they can have a better understanding of their shareholder base and address those common topics at their investor day. 

Perception studies can be extremely valuable exercises for companies. Calvin shares about some of the perception study results they’ve done in the past couple years. “In preparation for our investor day in March, we did a pre and post perception study. It was very effective and helped us shape our messaging heading into investor day.”  

The goal of running this perception study in advance is because they want their investor day to hit the mark. Although already being very engaged with their shareholder base, with a clear understanding of investor expectations, they wanted to dig deeper to discover any underlying issues. Calvin and his team came out of the perception study with 5 key takeaways their shareholders wanted them to address. After addressing those topics on the investor day in an effective manner, they received an influx of positive feedback. 

After conducting their perception study post investor day, they found overall that their shareholders were impressed by the quality of investor day, and the majority of shareholders were pleased with the topics addressed. 

To the extent you can get your investors in the habit of feedback it'll only be beneficial for everyone.  

How to address and communicate management changes / turnover

Management turnover can be hard, especially when it's new and unexpected. Karen advises that investor days are a great opportunity to introduce the broader team to your shareholders. If one day someone on your team steps up and takes on an executive role, the market already has some familiarity with them.

Brian also believes it comes down to having good relationships with the various sales teams and banks. “Talk to investors and meet with their teams to get the message across.” Being preemptive is crucial. 

Last year there was CEO turnover at Keyera. Calvin shared how they made a relatively easy transition as they had strong succession planning, as well as timely engagement to make sure their shareholders got a chance to get acquainted and develop a relationship.

How to manage investor expectations around M&A 

Brian shares about the public merger his company recently underwent with Kirkland Lake. The merger was generally well received, as the two companies already had a 70% shareholder overlap. The majority of shareholders felt confident going into the merger, with the exception of one major shareholder who voted against the merger and subsequently decided to exit the stock. For Brains shareholder base, they were quite pleased.

However not all mergers are as smooth. Often when you announce a merger it usually gets a very rapid reaction to your share price. 

Karen shares the importance of positioning your messaging well, focusing on value creation, and having conversations on an ongoing basis, so shareholders understand the future of the company and aren't surprised by the merger. 

Karen’s previous company, Logica, was acquired by CGI. The companies were very similar but covered different geographies. With that, the two did not share a lot of the same banks or analysts. The merger required different attention as it was crucial to inform shareholders about the background of both companies. Because there was no familiarity, most analysts are going to drop coverage, and the analysts themselves lose interest pretty quickly. 

“As the M&A is discussed internally, if you've got a seat at the table, there's an opportunity to make sure that you're bringing that reality check to the bankers and the FP & A teams that are working on the transaction to make sure that the multiple being put in the forecast correlates to what you've heard on the street, and to steer it if you think there's a disconnect.” 

Strategies to engage retail investors 

There are various ways companies may or may not decide to communicate with their retail investors. About 30% of Agnico Eagle Mines Limited shareholder base is retail. Brain shares how it's important to them to build relationships with their retail investors throughout the years through retail conferences, shareholder lunches, and leveraging Renmark Financial to connect them with retail brokers across NA. 

Karen shares the main retail message around dividend has been a pretty consistent message. “We look at our capital allocation messaging with a view that a lot of retail investors will read it, and then events like the AGM and investor day we typically have a high participation from retail investors. So use those platforms as a way to communicate more broadly. “

Calvin shares their efforts include quarterly lunches, trying to expand social media presence, and most importantly trying to develop and convey their company story. It takes real skill to draft an investor story that effectively communicates the value in your company that draws the right investors at the right time. 

Check out our blog post on how to tell your company’s story to investors. 

It's important to understand investors' expectations and be able to manage them through a variety of different challenges and situations, whether it's M&A, a change in management, or simply changes in the market. Understanding investor sentiment and communicating effectively with shareholders is crucial to maintaining an effective IR strategy.