Small cap companies could get a lot more support from their existing shareholders and visa versa — if only companies knew how to get in touch with them.
Back in 2012, the team behind Peloton Shareholder Services pounced on a classic piece of low-hanging fruit: while ASX companies had access to a register of their shareholders, the contact details on the register were often out of date.
“What we find typically is that even before we start shareholder engagement, the contact information on their registry…is probably only 5 to 20 percent accurate,” Peloton’s business development manager, Stevan Adzic, told Star Investing.
It turns out that when trying to engage shareholders, whether that’s with a share purchase plan or a notice of an upcoming annual general meeting, only being able to contact a small percentage of them is a problem.
The problem isn’t that shareholder registry databases such as Link Market Services or Computershare are fundamentally inaccurate — it’s more that as shareholders move or change their contact details simply aren’t updated.
The registry services aren’t obligated to keep updating the databases — it’s up to the companies that use them to keep the details up to date, and they’re simply not doing this enough.
“We’ve set up an information team and we take that information through three layers — and we’re able to guarantee to take that accuracy level up to 40 percent,” Stevan said.
“So not only do we double the number of phone numbers we can contact, we’ve delivered a 100 to 600 percent increase in the amount of shareholders we can contact.”
Trying to find people who have changed their contact details is difficult, which is where Peloton is providing value for a range of small-cap companies which simply don’t have the time, energy, or resources to track down mystery shareholders.
Being able to get in touch with them is one thing — what you say when you get them on the phone is quite another.
Why companies want to contact their shareholders
Stevan said companies typically engage Peloton in one of two ways: reactively or proactively.
The reactive approach
The former is to let shareholders know about a particular raise which is going on, so they don’t miss out on the retail component of it.
Typically, Peloton will get an AFSL-accredited advisor to call the individual shareholder and talk through the offer — and then this will be followed up with an email.
“The phone call delivers a front-of-mind play, whilst the email creates the urgency for the shareholder to participate if it’s a raise — or just to confirm what was discussed during the phone conversation,” Stevan says.
Using this approach, Peloton was able to assist in a recent oversubscribed $5 million rights issue for AVZ Minerals (ASX:AVZ).
He says that despite the offering being announced on the ASX, shareholders will often be in the dark about what’s going on.
“Do all shareholders check the ASX for the latest announcements and read through them?” Stevan asked. “It’s highly unlikely”.
“So they miss out on the opportunity to maybe buy in at a 20 percent discount with no brokerage — and that’s not good for the company or the shareholders.”
Then, there’s a more general information campaign.
The proactive approach
Small cap companies tend to have an issue explaining what they’re doing in simple and enticing terms.
It’s part of why Star Investing exists.
Stevan said by having AFSL-accredited advisors call up shareholders and explain simply what the company is doing, shareholders get simple information from a “trustworthy position of authority”.
“While they can’t give specific advice according to the shareholder’s individual circumstances….they are educated in the market — which means they can have a far more valuable conversation with the shareholder,” he said.
He says the alternative for shareholders that are a bit confused about what the company they’re invested in actually does is to talk to mates down at the pub, or the digital equivalent, jump on HotCopper boards.
One of the perennial issues small mining companies face, for example, is the dense and detailed announcements they need to make about their drilling results to the market.
While all this information is a regulatory requirement, finding the bigger picture through a thick forest of assay results can be difficult.
The lack of clarity can lead to an information void which is filled with speculation — well-intentioned or otherwise.
“When their [exploration companies] announcements are made, the verbiage is high in jargon — so people jump on the alternative which is HotCopper to try and get some context around it,” said Adzic.
“They rely on unprofessional opinions to make informed decisions.”
While punters having an opinion is one thing, smaller companies can also make concerted efforts to agitate the shareholder base as part of a short-selling campaign or an attempt to win board seats by getting five percent of the registry to call for a spill.
According to a report put out by law firm Arnold Bloch Leibler [PDF] in 2016, activist groups have won a total of 113 seats.
What’s more, 85 percent of the companies targeted had a market cap under $331 million.
It’s something Stevan says smaller players aren’t paying enough attention to.
“The system we provide goes to shareholder sentiment — how do the shareholders feel about the company?” he asked.
“Nine out of ten times a lot of the people at the company won’t have a good grasp of what shareholders think.
“Playing the game of hope or just guessing can be very dangerous, because we’re in an age where information is shared freely. Anybody can jump online and look at thousands of posts in different forums about that company.”
In the end, Peloton’s message is pretty simple: if you’re not talking to your shareholders, who is?
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Star Investing. Star Investing has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.
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