Unlocking intrinsic corporate value with performance IR
While many would be familiar with investor relations (IR), how much do you know about performance IR (PIR) and how can companies leverage on that to enhance shareholder value?
One of the shortlisted finalists for “Best IR Campaign” in the upcoming PR Awards 2016, Riverstone Holdings Ltd. (Riverstone) has undertaken the PIR programme since 2013. So what exactly can PIR achieve for a company? Let us first understand some of the challenges Riverstone faced back then:
1) Valuation gap as compared to industry peers listed on Bursa Malaysia.
a. EV/EBITDA of 5.1 vs industry’s average of about 8.0.
b. PE ratio of 9.5x vs industry’s average of 15.0x.
c. PB ratio of 1.5x vs industry’s average of 2.8x.
2) Lack of exposure and understanding of the company.
a. Zero analyst coverage.
b. Shareholding base has little to no institutional funds; public float was around 30%.
3) Low trading liquidity due to limited awareness on the company
a. Less than 20,000 shares traded daily
Upon identifying the respective challenges, a perception study was carried out among analysts and funds to understand the market’s level of understanding of Riverstone.The key messages and positioning of the company were consistently sharpened in order to keep up with the fast-changing expectations of the investment community.
With a clear investment thesis of a growth play supported by consistent dividend payout since IPO, we centred communication on the five-year expansion plan of the Group, which is expected to more than double production capacity from 3.2 billion pieces per annum to 8.2 billion pieces by 2018. With a visibility of the expected earnings growth coupled with the management’s ability to consistently deliver strong financial performance quarterly, we gradually gained conviction among analysts and funds.
Further to market intelligence on the industry, a holistic understanding of the company is derived through detailed understanding of the business operations and the development of a financial model. This not only reinforces a strong investment thesis for Riverstone but more importantly refines it over time. With a close observation of the industry peers’ performances and corporate developments, the IR team allows the management to consistently stay ahead and be prepared.
Apart from handling institutional investors and analysts, the IR team ensures prompt responses to queries from minority shareholders so as to uphold transparency for all stakeholders.
Supported by various stakeholders, the IR team adopted a multi-prong approach targeting both institutional and retail investors. Privileged to partner both local and foreign brokerages to organise non-deal roadshows (NDRs) throughout the year, it ensures consistent engagement with the investment community.
Apart from quarterly briefings post financial results announcement and the NDRs, site visits are organised frequently for its various manufacturing plants in KL and Taiping where the new factory housing the expansion sits.
With regular updates from the management headquartered in Malaysia, the IR team based in Singapore represented the company for analyst and fund meetings to help them learn more about Riverstone. The delegation of IR activities to our IR team enabled the management to focus on enhancing shareholder value.
Since taking over the IR function of Riverstone in 2013, the IR team has been working closely with the management in ensuring consistency in key messages and regular updates on corporate developments.
More importantly, from a shareholder’s perspective, the market capitalisation of Riverstone has increased substantially from S$183.5 million in June 2013 to S$889.3 million as at 31 Dec 2015, representing an almost five-fold increase in total returns. “SGX My Gateway” ranked Riverstone the top performer in terms of share price performance in 2015.
In addressing the challenges outlined earlier, the IR team successfully achieved the following improvements as at 31 Dec 2015.
1)Narrowing of valuation gap as compared to peers.
a. EV/EBITDA of 13.2
b. PE ratio of 21.4x
c. PB ratio of 5.6x
2) Improvement in visibility in the investment community
a. Five rated analyst coverage from local brokerages; various non-rated research notes from foreign brokerages as well
b. Shareholding base comprises various institutional investors including foreign funds
3) Improved trading liquidity
a. Less than 100,000 shares traded daily previously to more than 1 million now; particularly more active after the issuance of 1:1 bonus shares
To learn more about our detailed performance IR strategy implemented for Riverstone, contact us today!