Giving guidance is good for your share price. That’s the message from the panelists on last month’s guidance and earnings webinar for IR Magazine.
Neil Stewart, webinar moderator and IR Magazine’s editor-at-large, kicked off the event with a warning to listeners in the US that they might find some of the discussion ‘scary, and even rather shocking.’
He was talking about a growing trend of super transparency – embodied by the IR team at German energy firm RWE. Panelist Gunhild Grieve, head of RWE’s London IR office, explained that as well as offering guidance on the current year, covering a range of key performance indicators, the company also offers estimates on the year ahead.
But what makes RWE’s guidance policy really stand out is its approach to consensus estimates.
‘We have a practice whereby we ask our sell-side analysts to provide us with their numbers: they have them in their models but then [we] also [want them] on a post-restructuring or post-disposal basis,’ said Grieve. ‘We put a revised consensus on our website with those clean numbers, which are comparable with our guidance.’
This is where IROs in the US might start to break a sweat. Growing levels of transparency might be the trend in Europe, but Regulation FD in the US discourages companies from RWE-style openness. Despite this, Jason Whitaker, application specialist at Bloomberg, maintained that an ‘open line of communication’ remains the best practice – no matter where you are or what industry you’re in.
He added that whatever size your business is, if you can give guidance – even in the form of something as simple as a production target – you should be doing it. ‘The evidence seems to be that the more you give guidance, the better your share price,’ he said.
Fellow panelist Chris Bailey, head of global direct investments at Close Brothers Asset Management, agreed. He said that as a fund manager, when ‘people are saying less and less, guess what? We become less inclined to buy their shares.’
Rather than letting macroeconomic ‘wobbles’ deter you from giving guidance, Bailey noted, companies should be doing two things; offering a guidance range and extending predictions into the medium term. A range of between 5 percent and 10 percent offers the leeway that is lost on a very specific number, he explained, while medium-term forecasts encourage your investors to think beyond each quarter – which Bailey said will help attract a more committed investor, too.
‘I appreciate you’ve always got to be careful,’ he added. ‘You’ve always got to factor in what’s happening in the world, but one good thing about a guidance range – particularly something that talks beyond this year – is that you can factor in and absorb some macroeconomic volatility. And on a quarter-by-quarter basis you can say, We’re still on track – it’s been a little bit tough this quarter because of X, Y and Z, but we’re still on track. The market gives you credit for that.’
Listen to the IR Magazine Webinar: Guidance and earnings estimates in economic uncertainty – hear from the buy side online now to hear from:
- Neil Stewart, editor-at-large, IR Magazine
- Chris Bailey, head of global direct investments, Close Brothers Asset Management
- Jason Whitaker, application specialist, Bloomberg
- Gunhild Grieve, head of London IR office, RWE
By Garnet Roach
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