Greek listed companies badly need to upgrade their investor relations
If one takes a look at the share price action of listed Greek firms, he or she will easily discover that a small number of large capitalization stocks have done much better than the rest of the market because they have been able to attract the attention of foreign funds seeking superior returns. This has effectively rendered the Athens Stock Exchange a two- or three-tier market according to some participants. It should not stay that way. Promising large-cap and mid-cap companies should pay greater attention to investor relations and start marketing themselves more aggressively abroad in order to reverse the trend and breathe new life into their stocks, the Athens bourse and the Greek economy in general. A brief look at the performance of the major Greek stock market indexes reveals the story. The Athens general stock index was up 5.5 percent year-to-mid-October and the blue chip FTSE/ASE-20 index gained about 12 percent, whereas the mid-cap FTSE/ASE-40 index was down 17.4 percent and the small-cap FTSE/ASE-80 index suffered losses of about 27 percent. During the same period, the German stock market DAX 30 index was almost flat, the French CAC-40 index and the British FTSE-100 index gained some 4 percent, the Spanish IBEX as up about 7.0 percent and the Italian MIB some 6.0 percent. Foreign investors as catalysts It is no coincidence that the best performers among blue chips participating in the FTSE/ASE-20 index have been companies in which foreign investors have been continually increasing their equity stakes. State-controlled lottery OPAP is one of them, gaining more than 40 percent since the beginning of the year, followed by National Bank, Motor-Oil and CosmOTE mobile with some 30 percent or more, Titan Cement with some 28 percent, EFG Eurobank Ergasias with more than 26 percent, and Alpha Bank and Viohalco with over 10 percent. On the other hand, some blue-chip stocks, such as Agricultural Bank of Greece and Intracom, which have failed to lure in foreign investors have registered steep losses on the order of 39 percent or more since the start of the year. The poor price performance of Greek small-caps is also easily detectable when one compares the national small-cap MSCI indices of developed stock markets. The Greek small-cap MSCI index has recorded the biggest losses, some 4.6 percent year-to-date in local currency, with Canada being the only other index registering even a small loss, of some 0.5 percent. Most analysts and other pundits believe that the underperformance of many Greek small-cap shares is unjustified on valuation grounds and should be attributed to the lack of sufficient inflows. They are right to a great extent. With private local investors shunning the market after suffering devastating losses in the aftermath of the burst stock market bubble in 1999, and local equity mutual funds trimming positions as they experienced redemptions, the supply of shares exceeded domestic demand for most companies, driving their shares lower in the process. Mid-caps weak Unlike some large-caps, which found a new source of demand for their shares abroad, most mid-cap firms have been unable to do the same for several reasons. First is the size factor. Many of them do not surpass the critical minimum threshold of 200 or 350 million euros in market capitalization, defined by the rules governing the investment policy of foreign funds. Undoubtedly, in a world where liquidity is abundant, there is a lot of money around to be invested. However, as the vast majority of foreign funds must devote resources to track numerous listed companies seeking their attention around the globe, they put the market cap barrier a bit too high for many promising local firms. Second, local companies have failed to understand the importance of investor relations in making their case to foreign investors. Some of them, even today, tend to confuse public relations with investor relations. Others have not managed to put together a good team to ensure the smooth and consistent flow of corporate information to potential foreign investors. Their task is easy because their stocks suffer from insufficient liquidity in addition to a limited free float and small size. Despite the above hurdles, Greek large- and mid-caps with attractive valuations and unique stories of restructuring and growth could have done much better had they been able to sell themselves more effectively abroad. They have been unable to do so because they have not recognized the importance of investor relations; in so doing, they have failed to see that there are numerous foreign small-cap funds which could have been convinced to put a small portion of their assets under management in a promising local company, lifting its share in the process. It is no coincidence that most local companies continue to fail to grasp some simple things such as the importance of analyst coverage, feedback on analyst reports and targeted roadshows. Even when a company puts on a roadshow to present its case abroad, it is usually to the major world financial centers such as London or New York. Few take the time to visit smaller US cities, such as Kansas City or Minneapolis, or even Canadian ones, such as Toronto or Montreal, where different types of foreign funds, such as mutual funds, pension funds and insurance companies, have their headquarters. Undoubtedly all listed firms are not the same. Nevertheless, a good number of Greek mid-caps do themselves an injustice by failing to understand how important it is to sell themselves more effectively abroad at a time when they face considerable investor indifference at home. This, however, asks for a clear commitment to good voluntary and involuntary disclosure policies requiring the presence of an effective and efficient investment relations department. Without it, stock under-performance will be the rule not the exception, depriving the broader stock market of fresh funds and the Greek economy an engine for growth.
