As we embark on the biggest change in our relationship with trading partners around the world, it’s important to know what investors in growth companies are thinking.
We recently published our fourth Investor Survey, which we conduct with RSM and YouGov. Areas covered include the quality of the growth market, AIM and what investors look for in a good chairman or chairwoman. We also asked about Brexit.
Some fund managers sold shares after the Referendum to remove particular exposure but then felt this was too “knee-jerk” as stocks quickly came back.
Managers feeling too exposed to UK-focused stocks made changes, realigning to more overseas-facing areas. One moved towards capital goods, healthcare and software, stock-picking rather than going ‘sector-specific’.
The market’s reaction to Brexit is ‘two-toned’, based on international or domestic earnings. We see a mix of views.
Asked what companies in their portfolios should do, they provided seven pointers (see box). These suggest companies should carry on as usual, with no knee-jerk reactions. The message is, don’t use Brexit as an excuse!
As to the Quoted Companies Alliance, there is always the danger any policy will have a disproportionate and detrimental effect on smaller quoted companies. With Article 50, triggering Brexit, the risk is greater than usual.
While the eyes of the policy makers and big campaigners will be on the global banks and capital markets that serve the FTSE100, QCA will seek to ensure we are part of the dialogue to ensure the needs of smaller quoted growth companies are heard and taken into account.
We’ve been highlighting the importance of our members to the UK economy with Government and regulators on all fronts. And we are developing a market manifesto setting out the key issues and opportunities for our growth markets. I will share this with you as it develops.
As well as Brexit we have work to do on the Industrial Strategy, the Patient Capital Review, the Corporate Governance Green paper and three consultations from the FCA on our primary markets and the IPO process.
The challenge is to ensure the voice of smaller quoted growth companies is heard and their impact on the UK economy is taken into account.
Like it or not, we see it as a great opportunity to design capital markets that meet the needs of smaller quoted companies, the engines of growth for the UK economy.
We need these engines to be the best they can be to drive the economy forward in these uncertain times.
The Insights for Companies Seeking Investment event will take place in Leeds on Thursday 23 March at 5pm at RSM’s Leeds office.
Speaker Andrew Buchanan from Octopus Investments who will explain what he looks for in companies.
All quoted company directors are welcome to attend. Email email@example.com or call 020 7600 3745 to book your place.
The Report on the survey can be found at www.theqca.com/investorssurvey2017
Tim Ward is Chief Executive of the Quoted Companies Alliance, the independent membership organisation that champions the interests of small to mid-size quoted companies.
Seven pointers for companies:
1. Make the uncertainty less uncertain: Companies should make firm judgements about how Brexit might impact them, such as stating the quality of international relations and if they are changing, even if the results are still unquantified.
2. Labour availability is likely to shrink when the UK leaves the EU. Companies should plan to avoid shortages and be ready to answer investor questions clearly.
3. Capex: Delaying investment in the hope of greater certainty may cause more long-term problems than it solves. Investors say go ahead where returns are visible (efficiencies, clear payback) but hold off major capacity investments.
4. Efficiencies: Importers and retailers should work to achieve efficiencies in the face of rising prices and rising minimum/living wage in the UK.
5. Balance sheet: Strength here is important. Cash conversion remains king.
6. Under-promise and over-deliver: This much used mantra is absolutely key when in uncertainty. Companies should build in ‘wriggle room’.
7. Pricing: Companies need strategies to increase prices, with an early pre-emptive rise being best, before stronger inflationary pricing pressure build.