71 per cent of respondents believe ASX’s Guidance Note 8 should be
updated to reflect sell-side structural changes and their impact on
46 per cent of respondents said the number of sell-side analyst reports about their company has dropped.
38 per cent of respondents have experienced a decline in the number of sell-side analysts covering their stock.
New research from the Australasian Investor Relations Association
(AIRA) shows 71 per cent of respondents to its recent study into the IR
community’s perspective on sell-side industry structural changes taking
place, believe ASX’s Guidance Note 8 should be updated to reflect these
structural changes and their impact on consensus estimates. Guidance
Note 8 states: “ASX does not believe that an entity has any obligation,
whether under the Listing Rules or otherwise, to correct the earnings
forecast of any individual analyst, or the consensus estimate of any
individual market data vendor, to bring it into line with the entity’s
internal earnings projections.”
“This is problematic given the research indicates sell-side research
is increasingly incorrect or out of date,” said AIRA CEO Ian Matheson,
commenting on the findings.
A total of 61 per cent of respondents said out-of-date sell-side
research causes issues when managing consensus. As a result, companies
cannot rely on publicly available consensus figures as a reference point
for calculating consensus estimates, with 70 per cent of respondents
using company calculated numbers rather than external figures to derive
Worryingly, a total of 75 per cent of respondents said their company
consensus figures differed to publicly available consensus numbers. This
is causing concern for a large number (43 per cent) of respondents, who
are apprehensive about investors and the media relying on potentially
out-of-date and incorrect publicly available consensus estimates.
While a majority of companies (58 per cent) provide some form of
earning guidance, many (43 per cent) don’t believe this resolves the
issues relating to managing consensus estimates.
Moreover, this issue appears to be worsening, with 40 per cent of
respondents indicating the prevalence of out-of-date sell-side research
and forecasts has grown over the last 18 months.
“For some companies, providing earnings guidance resolves this
problem. But not all companies publish guidance. Our understanding of
the regulator’s view is that companies need to be consistent when it
comes to providing guidance; they are not encouraged to provide guidance
for one period and decline to do so for future results. This is one of
the issues that should be addressed in any review of Guidance Note 8,”
Mr Matheson added.
In total 91 per cent of companies don’t publish sell-side forecasts
on their web sites and the results indicate regulatory uncertainty
discourages companies from publishing this information. Altogether, 33
per cent of respondents who decline to publish sell-side forecasts do so
due to regulatory uncertainty.
Other alarming trends are emerging in sell-side research. In total 46
per cent of respondents said the number of sell-side analyst reports
about their company has dropped over the last 18 months. There has also
been a drop in the number of analysts covering listed companies, with 38
per cent of respondents stating the number of sell-side analysts
covering their firm has fallen over the last 18 months. This trend is
most prevalent among ASX 100 firms, with 45 per cent of this group
indicating a drop in the number of analysts covering them.
Moreover, survey results indicate the continuing ‘juniorisation’ of
the research sector, with 25 per cent of respondents stating more than
20 per cent of the analysts covering their stock had been doing so for
less than 12 months.
The changes taking place in sell side research are prompting activity
among the growing number of independent research houses appearing in
the market, with 40 per cent of respondents indicating they had been
approached by one of these firms in the previous 12 months.
However, investor relations executives are responding to structural
changes on the sell-side. Overall, more than half (55 per cent) of
respondents are putting strategies in place for dealing with these
changes. These include: increasing direct engagement with the buy-side;
organising more investor meetings directly; and, utilising new investor
targeting tools and, where available, multiple brokers to organise
This is pleasing, and demonstrates a willingness among the IR
community to adapt to changing market dynamics over time. For its part,
AIRA will be updating and developing its own best practice guidelines to
incorporate these industry changes around consensus estimates.
ABOUT THE RESEARCH
A total of 67 Australasian listed entities from ASX 300 / NZ 50
companies responded to the survey, which was carried out in August /
For more information contact:
Ian Matheson, Chief Executive Officer, AIRA?
T: +61 2 9872 9100
M: 0419 444 731
The Australasian Investor Relations Association (AIRA) was
established in 2001 to advance the awareness of and best practice in
investor relations in Australia and New Zealand and thereby improve the
relationship between listed entities and the investment community. The
Association's 160 corporate members now represent over A$1.2 trillion of
market capitalisation, over 80% of the total market capitalisation of
companies listed on ASX.