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As the market begins to recover, there is good money for good stories

Written by Cameron Gilenko

May 12, 2020

Nobody could have foreseen the volatility of equity markets so far in 2020.

The ASX enjoyed a stellar 2019, which continued into the early months of 2020, hitting a record high on 20 February. While some thought equity markets were close to full value, most investors were getting set for another strong year of returns.

Enter COVID-19.

Just 22 days after its record high, the ASX slumped 36.5 per cent. This included a 9.7 per cent drop on 16 March, the biggest single trading day fall since 1987’s ‘Black Monday’ crash, wiping $162 billion of value in one day. In less than a month, the ASX lost nearly four years of market gains.

Personal share portfolios were smashed, blue chip stocks once considered “safe” investments were re-rated – down, and self-managed superannuation funds decimated.

The equity market destruction has created a new paradigm and publicly listed companies have had to adjust to the next normal, quickly.

Boards and management have been forced to adapt to an environment driven by uncertainty and fear. Focus has switched to reviewing, adjusting and implementing strategies, procedures, budgets and workstreams to ensure survival against the tide of COVID-19.

Even those with the longest of corporate memories have found themselves in genuinely unchartered waters. There is no corporate playbook to follow in this environment.

However, a prevailing theme gathering momentum, as the market shows signs of recovery, is that savvy investors are willing to open their cheque books for well-communicated, growth stories.

As a well-regarded investor said recently: “There’s good money available for good stories… however, companies that cannot communicate a clear story and outline their use of funds, are seeing limited or no appetite from the market.

“Now is certainly not the time to be concerned about daily share price fluctuations and elements out of the company’s control. Now is the time to stay focused on articulating your growth story.”

While Citadel-MAGNUS would typically counsel against over promotion, the current environment lends itself to measured “over-communication”; it is better to communicate than leave a vacuum of silence.

Even the simplest of update can help demonstrate that your business continuity strategies are working. It might not move the share price, but it might provide shareholders with the confidence to not sell their shares at a time when portfolios are being rationalised.

Here are some fundamental principles of best practice communication to consider in this current environment of uncertainty:

  • Clearly define how the company is managing the short-term risks; provide updates and keep stakeholders informed.
  • Ensure the corporate strategy is ‘fit for purpose’ and, if so, that the key messages of the business are well articulated.
  • Use the downturn to your advantage; is this the opportunity to redefine your strategy or restructure your operations? For example, talk is already emanating about businesses adopting a more flexible work structure in the wake of social distancing restrictions.
  • Reinforce the key fundamentals and competitive advantages of the company.
  • Ensure the work program and delivery of key milestones are well outlined, thus providing confidence to the market that the company can still prosper despite this difficult environment.

Fear and uncertainty have underpinned recent investment decisions. Now is the time to focus on delivering re-assurance, confidence and clarity to your investor base, customers, suppliers, stakeholders and the wider market.

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