Key Highlights from the Radar Reporting Season Primer : December 2009
Focus Shifts to the Income Statement
The results of our survey highlight a significant change in the areas which institutional investors are focusing
on as part of their investment decision making process. In short, their focus has shifted from the balance
sheet to the income statement.
Specifically, the main two income statement related issues which investors are focusing on are operating
leverage and currency exposure. Also, investor’s interest has significantly increased in environmental, social
and governance (ESG) issues. This comes as a response to the heightened level of interest in these areas
from superannuation funds and asset consultants. Other key issues which institutional investors are focusing
on are: earnings guidance; interest rate exposure; corporate activity and capital management; China leverage;
earnings quality and cash flows; consumer leverage; and the dispersion of analyst earnings forecasts.
Take Control over the Book
We found that investors overwhelmingly believe listed companies to be generally well capitalised. An
exception to this was small listed property trusts.
Participants suggested that the capital raising process could be improved from an institutional investor’s
perspective if:
• Companies, rather than brokers took primary control over the stock allocation process; and
• Companies chose rights issues rather than placements as a capital raising structure (given this protects
the interests of existing shareholders). However, participants did convey their dislike for heavily
discounted non-renounceable rights issues as they effectively force investors to supply capital (or
become diluted and receive no consideration for renounced rights).
Bullish Outlook for Australian Equities
The investors surveyed were overall very bullish on the outlook for the Australian equities market over the
coming 6 months. 65% of participants expected the market to rise over the next 6 months and 50% of
participants expected it to rise by 10-20%. Growth managers and style neutral managers were the most
bullish, whereas value managers tended to be bearish. The sectors nominated as having the best prospects
were: Building Materials; Mining Services; Resources and Discretionary Retail. The sectors nominated as
having the weakest prospects were: Healthcare; Telecommunications; and Consumer Staples.
Components of an Effective Investor Relations Program
On the issue of investor relations programs, investors nominated the following as being key areas which
need to be properly addressed by listed companies: access to management; knowledge of the company;
knowledge of investors; development of relationships; honesty and trust; importance of being pro-active; and
the need to effectively manage the information flow through to the investment community.