Thanks to the Shareholder Rights Directive II (SRD II), which came into effect in June 2019, shareholder analysis is more straightforward than previously. As an issuer, you can understand the custody chain of your shareholding up to the beneficial owners and gain access to the identity of all investors who own at least 0.5% of your shareholding. In some European Union member states, there is no lower threshold, allowing you to identify all shareholders.
Within a year of EU nations implementing SRD II, investor relations officers (IROs) were already committing to using this newfound freedom in their engagement strategies. On a Euronext webinar entitled “A practical view on the implementation of SRD II”, 40% of the IROs polled during the event said that they would increase the frequency of shareholder analysis reports thanks to the additional transparency of SRD II.
Table of Contents
II) What are the goals of shareholder analysis?
III) How to perform shareholder analysis
What is shareholder analysis?
Shareholder analysis is the process of understanding the activities and motivations of your investors. It involves looking at historical activity, voting records and a series of other factors to identify potential voting intentions and policies, spot shareholding gaps and compare your shareholder base with that of your peers.
Using the information at hand, you can make judgements over which types of investors to target, who you should prioritise engagement with and how to fine-tune your investor relations (IR) messaging to reach a larger portion of your existing shareholding.
There is also a compliance angle, and by analysing the shareholder identification data you receive, you can ensure you do not breach any third-country regulations in terms of the ultimate beneficial ownership of your stock.
What are the goals of shareholder analysis?
Identify your target shareholder
Investor targeting is important for your organisation because it is an opportunity to add value. By analysing your shareholding, you can see which types of investors you currently attract and either aim for more of the same or diversify your targets, depending on your strategy. If the analysis identifies investors who hold stock in your peers or your sector but not in your business, you can formulate a plan to connect with them.
Understand investment strategies
When you analyse the way that investors behave, you can gain insight into their investment strategies. This, in turn, helps you, as an issuer, to serve them more effectively. By understanding how shareholders seek to fulfil their goals, your investor relations team can communicate with them in terms that will fit their aspirations. Such insight also helps you anticipate how they may vote and for how long they might hold your stock.
Assess retail ownership
Retail investors differ greatly from institutional investors, so it pays to understand what percentage of your shareholding is held by them. With the advent of the COVID-19 pandemic, many companies saw a sharp rise in retail investment. During the 14 months between March 2020 and May 2021, there were only two months when retail shareholders sold more than they bought on Euronext markets, so it seems they will play an increasingly meaningful role as shareholders.
In general, retail investors tend to look at the long-term benefits of their investments and are especially mindful of environmental, social and governance (ESG) matters. One survey found that half of French retail investors during the pandemic made investments to directly support homegrown companies. These traits could well influence your IR strategy if you find that you have a high proportion of retail investors.
Detect activist funds
Analysing shareholder information allows you to detect activist investors before they cause a headache for your executives. By preempting activist behaviour, you can plan how best to deal with it and minimise disruption for your organisation.
Improve shareholder engagement
Knowing exactly who you are talking to improves the quality and success of your shareholder engagement efforts. It also helps you allocate more effectively the precious time that your C-suite can invest in interacting with the most important shareholders.
These will not necessarily be the biggest shareholders. More importantly, they should be those with whom your board can have the most productive and valuable conversations. For example, how likely is it that engaging with an investor will sway their voting policy? Your shareholder analysis can help you forecast this and choose the most appropriate engagement policy.
How to perform shareholder analysis
1. Analyse the economic environment
The key aim of performing shareholder analysis is to understand the range of parties invested in your company. There may be times when this does not change very much, and there will be other situations in which your shareholder base is more fluid.
During and after times of high volatility, it is essential that you analyse your shareholding and understand who has maintained their investment, who has bought more stock and who has disposed of stock.
Euronext found that, during the COVID-19 crisis, many investors “maintained equity portfolios during the downward phase due to exceptional volatility levels and the inability to sustainably reallocate the assets” and then there were “pragmatic decisions made during the upward phase to preserve liquidity in order to address eventual withdrawals and expected future volatility peaks”.
2. Pinpoint your top shareholders
When analysing your shareholding, you can understand how your top shareholders operate and feed that into your engagement efforts. For example, you can identify the most influential investors, the ones that have the most substantial holdings, and track how and when they are buying or selling your stock.
It is also possible to track how they have reacted to company announcements and previous shareholder engagement events, as well as changes to dividend policies and similar. This gives you a steer on how to communicate with them in the future and what to expect in certain situations.
3. Reveal your new shareholders
IROs should always be looking to engage new contacts within their shareholding, and shareholder analysis helps identify these parties. If there is a new investor in your portfolio, the sooner you talk to them and begin a dialogue, the more likely they will be to feel valued. This helps you build loyalty and trust between issuer and investor.
4. Understand the geographic diversity of your shareholding
Knowing where your shareholders are located allows you to assess the risks of the current base. If all of your investors are situated in the same country, this might be reflective of the fact that you are focused on that territory above all others. If there are concerns about a crisis occurring in that one location, this might lead to problems for the organisation.
Alternatively, if an issuer’s shareholding is spread across multiple nations, there is a higher chance of a situation in which a location shareholders are based in may become subject to sanctions. In recent months, many Russian assets have been frozen in the European Union, for example.
The ideal geographic diversity for your company depends on your priorities, and you can start to outline that as part of your shareholder analysis.
5. Understand shareholder sentiment
Analysis of your shareholding provides the opportunity to gain an insight into the prevailing mood of your shareholders. You can understand their thoughts on sustainable investing, for instance, which can then help you formulate your ESG strategy going forward.
The analysis also helps you track investment styles within your portfolio. You can check for a change in the balance of active versus passive investing and other shifts in style that might affect how you engage with investors in the future.
6. Analyse your competitors’ shareholding
Being able to ascertain who is increasing their exposure in your sector and investing in your peers allows you to target them in the near future. If they have interest and knowledge in your area, they will also probably already understand a fair amount about your business, which gives you a route into engagement with them.
How does SRD II impact shareholder analysis?
The ability to identify shareholders is a real opportunity for issuers in terms of effective shareholder analysis. It provides the building blocks for a detailed, expert strategic analysis.
What is the impact of the growing number of retail investors?
Predicting how your shareholding will react to events becomes less straightforward with a growing number of retail investors. They are less likely to have the in-depth knowledge of the market that allows them to see the bigger picture in times of crisis. Whilst IROs can often predict how institutional investors will react, it is less clear when considering what retail investors will do.
Does shareholder analysis help you prepare for your AGM?
Shareholder analysis is essential in preparing for your AGM. It helps you formulate how you will approach the event in terms of gauging potential reactions to recent challenges your organisation may have undergone. This helps you create a more inclusive and engaging experience for company shareholders, bringing them on your side.
Shareholder analysis is critical for your investor relations strategy. By truly understanding who owns your organisation and their moves, motivations, concerns and passions, you can better tailor your engagement efforts to make your interactions more effective and fruitful, building a bond between issuer and shareholder.
If you want to receive a detailed dynamic analysis as well as advice and recommendations for your IR team, the Shareholder Analysis experts at Euronext Corporate Services can help. Request a demo today and discover how you can transform your IR strategy right now.
References and further reading
- The importance of retail investors
- Understanding shareholder expectations
- IR in turbulent times
- Plan an investor roadshow
- More about Shareholder Analysis