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Meet the AIM Players...
Commissioned Research Providers
We are most grateful to Nick Rome, director of Bishopsgate Communications for producing the following article for our 'Meet the AIM Players' series.
Do I really need it?
A guide to understanding the importance of commissioned research
If you want to improve your company’s visibility, strengthen and amplify its message, reach, and increase its current and potential investor audience, then commissioned research is the right option for you. Research is especially useful in helping to generate liquidity in the stock.
Many brokers have a research function through which they will initiate coverage on a client with regular updates to the market. However, not every AIM broker will provide such a service, and those that do will be focusing on the institutional market, rather than the private investors – the key to liquidity. Therefore it can be beneficial to use the services of a commissioned research company to transmit a company’s investment story to the wider financial community.
What is commissioned research? Well, it is research paid for by the company and is independent of the House Broker. Companies who have both will benefit, as this means additional coverage for its investment proposition, especially if choosing a Research Company which has a retail focus to complement the House Broker note’s institutional slant. Operators in this small cap space include Growth Equities & Company Research (GE&CR), Edison Investment Research and Hardman & Co.
So why does an AIM company need to use it? The large cap companies will have analysts who follow their stock and produce forecasts. The small cap market does not have the same following. Simultaneously it is worthwhile bearing in mind that whilst an independent analyst is legally permitted to make forecasts on future prospects, directors of a company are not.
It can prove incredibly advantageous to have a research note in order to gain a following by tipsters. The opportunity to have this printed in the national media is a huge upside of commissioned research.
The benefits to the private investor of retail focused commissioned research is that it will provide potentially new investment ideas for those still with an appetite for equities. Additionally, it will also provide clear and insightful updates on companies in which you might already have a holding.
For a business the benefit will be the large database, which the research company will hold, that can be specifically focussed to relevant sector contacts. Research company GE&CR specialises in having a database reaching tens of thousands of investors as well as journalists and other opinion formers. Using this research company provides a real opportunity to directly target potential investors.
So how much will it set you back? On average a year’s coverage will cost between £10,000-£30,000 depending on the research company. The note can be printed as a hard copy or sent via email or on a website to make it available to read ‘on the go’.
What will these costs cover? A full ‘initiation of coverage’ note will be produced by way of introduction and this will be followed by flash notes. These smaller notes will be released to mirror the key financial announcements throughout the reporting cycle. A note will include news and financial highlights as well as in depth study of the company, including its positives and potential difficulties.
An Outlook will finish the note, in which the analyst will detail the forecasts for forthcoming years. This is an opportunity to reiterate the investment story of the company. GE&CR also provide target prices and recommendations.
The research company produces the note following extensive investigation to ensure they have a fully informed view on the company. Usually this will comprise of meeting key board members and discussing the business whilst at the same time performing their own independent research and analysis.
It could be very easy to dismiss commissioned research over concerns about their capability to provide valid analysis. However commissioned researchers aim to strike a balance between the client and the market. They will ensure that their advice is honest and fair to both the company and the investment community.
In a market in which liquidity is increasingly drying up it is important that companies maintain their public profile. Research can be utilised, alongside the release of news, to maximise the impact of the investment case. City journalists as well as investors are particularly pleased to receive financial analysis and forecasts to support their announcements. Companies will find that their share price will benefit from this extra boost of information.
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Written by Nick Rome
Copyright Aimzine Ltd
... whilst an independent analyst
is legally permitted to make forecasts on future prospects, directors of a company are not
The benefits to the private
investor of retail focused commissioned research is
that it will provide potentially
new investment ideas