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Investment for smaller quoted companies
Investment for smaller quoted companies
Keywords: Investment, Smaller quoted companies
The UK's smaller quoted companies (SQCs) will find it increasingly difficult to attract investment and support unless they communicate more effectively with the City, according to a report published recently by a City/industry working group sponsored by the DTI.
SQCs will have to put more effort into shareholder communication than larger companies if they are to attract investment in an increasingly competitive environment, it says. The report recommends that SQCs should provide annual "Statements of Prospects" and quarterly trading reports, to ensure that shareholders are better informed. It also calls for SQCs and smaller company fund managers to produce statements detailing their approach to communication.
The report says consolidation by fund managers, indexation and a rapid boom in pan-European investment are leaving smaller SQCs short of institutional investors. It argues that consolidation is leading to higher minimum investment levels. Those companies which fall below the FTSE's Small Cap Index (valued at less than approximately £50 million) are particularly at risk of being ignored by institutions.
It argues that an active and receptive market for the listing of new SQCs is crucial to encouraging innovation, competitiveness, employment and wealth creation. It says SQCs and fund managers both have a role to play in improving communication with each other.
DTI Secretary of State Stephen Byers and CISCO President Kenneth Clarke have both endorsed the report. In a joint foreword they call for SQCs to embrace a culture of more open and targeted communication with institutional investors if they are to develop as successful publicly-quoted companies.
"Creating Quality Dialogue" is aimed at quoted companies outside the FTSE 350, those valued at less than approximately £350 million, and smaller company fund managers who invest in them. It details practical suggestions on how companies can improve their communication with the City and is based on in-depth interviews with 50 organisations and a survey, conducted by Datastream/ICV, among a broader sample of SQCs and fund managers.
An alarming fact that came out of our research was that over 60 percent of SQCs feel that fund managers do not have a good understanding of their business.
Paul Myners, chairman of the DTI Investor Relations working group, said:
Perhaps just as stark, over 70 percent of fund managers told us that SQCs' grasp of what determines share value is poor.
The report says SQCs should provide existing and potential shareholders with high quality information, such as:
a forward-looking "Statement of Prospects"; and
quarterly trading reports.
It also urges both SQCs and smaller company fund managers to produce an "Investor Communications Statement" (ICS) to provide the framework for quality dialogue. This would set out details of their investor communication policies and programmes.
For SQCs, producing an ICS would underline their commitment to quality dialogue. Smaller company fund managers are also encouraged to produce an ICS, to give SQCs a clearer understanding of their expectations, enabling SQCs to communicate more effectively with the City.
The report urges the financial community to establish a proactive programme for educating directors about effective communication with the City, both in the run-up to flotation and subsequently. Myners said:
Many company directors, although accomplished in their own fields, come to the public market with little or no experience of working with the financial community. SQC directors who have learned the hard way, through experience, have told us they would have benefited from some sort of training prior to flotation.
We believe improved dialogue will help SQCs appreciate the City's expectations while enabling the market to work with information of better quality than currently disclosed. Ultimately, with improved communications SQCs will be in a much stronger position for the market to price their companies with more confidence and to attract further investment.
"Creating Quality Dialogue" will be distributed to all listed companies shortly by the London Stock Exchange. The full text of the report can be accessed on the Innovation Unit's Web site, www.innovation.gov.uk Further copies of the report can be ordered from the Web site, by contacting the DTI Innovation Unit on 0171 215 1994, or by faxing a request on 0171 215 1997.