Knocking on Doors
It’s a development Walther should welcome. Since Cohort’s IPO on AIM in 2006, the only research published on the company has been from brokerage house Investec. So after joining Cohort two months after the IPO, Walther has regularly met with analysts who are interested in the firm’s story even if they won’t commit to coverage, because they can’t envisage any returns on investment. “I can accept that to a certain extent,” says Walther, who sees two solutions: growing the business to a market capitalisation that will get it noticed and finding other ways to increase liquidity. On growth, Cohort has been pursuing a “buy and grow” strategy since listing. Two acquisitions — of Mass Consultants and SEA Group, both software and engineering firms serving the defence sector — have increased turnover from £18m to £34m within one year and taken market cap to £70m. Walther reckons the next acquisition, still to be found, will push Cohort through the £100m barrier. As for liquidity, the finance chief wants to generate interest among investors who are willing to buy smaller share packages — family trust funds, private clients and retail investors. For staff who might hit a wall when they try to cash in their share options, Walther is considering setting up an employee benefit trust where Cohort could hold shares sold by employees until they can be passed on to bigger investors.
Alongside this, he is tirelessly pursuing a communications strategy with analysts. Fundamental to the strategy is targeting the right analysts and understanding what they want. “The first thing I ask any analyst is, ‘Are you interested in technology and defense stocks?’ If he says no, then there’s the door. If he says yes, then you start to talk,” says Walther. To ensure that the discussion is constructive, he has honed two areas: developing a well-structured presentation about a good company story and delivering what the analyst wants. “After that, it’s really just about knocking on doors,” says Walther. “There’s nothing else to beat it. If you don’t go out and meet these people, you’re not going to get anywhere.”
While busy chasing analyst coverage, it’s important not to neglect the daily duties of driving operational efficiency and growing the company — one reason why analysts cover a stock in the first place. That’s something Dave Lemus knows all too well. The CFO of Morphosys, a €62m German biotechnology company, had no problems attracting analyst coverage following its IPO on the Neuer Markt — Germany’s now-defunct exchange for technology stocks — in 1999. From three analysts covering the company at the time of the IPO, it reached an all-time high of 26 in 2000, including major investment banks and many local German banks.
Lemus says the company had several things on its side. It was the height of the tech boom and companies pursuing antibody technology were in favour. As the first German biotech IPO, Morphosys attracted significant interest, being 66 times oversubscribed, and the company struck a “double-digit million dollar” deal with Bayer (now Bayer Scherring). In addition, Lemus launched an “extremely aggressive” IR programme. “I got on the road with our German IR agent and saw all the major opinion makers in Frankfurt and Hamburg,” Lemus recalls. “We were on the road for several days and on the back of that we had a number of excellent recommendations from stock newsletters that were quite influential.” Morphosys’ stock price climbed from around €25 at the end of 1999 to more than €440 during 2000.