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Equity Research
22 April, 2009
How to survive in IR in 2009
An analyst/investor perspective
Klaus Ørtoft Madsen, +45 33 41 82 89, [email protected]
About Handelsbanken Capital Markets
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•
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•
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2
Financial markets have changed dramatically
Stage 1 - Sowing the seeds for the crisis: 1990s to 2007
−
−
−
−
−
Fannie Mae and Freddie Mac (Government-Sponsored Enterprises)
Innovations in securitization: CDO etc.
Low federal funds rate 2001-2005
BRIC countries driving growth
Bubble of optimism
Stage 2 - Troubles become visible: mid-2007
−
−
−
−
−
Mounting mortgage defaults starting in 2007
Bear Stearns rescue in early 2008
Lehman et al. failiures in September 2008
Huge credit contraction/counterparty risk
Bubble of pessimism
Stage 3 - Government response: Since late 2008
− Early signs of easening uncertainty
3
Earnings shock ahead
4
Global PMI and Industrial production
60.0
10.0
Global PMI, manufacturing,
led by 2 months
57.5
7.5
5.0
52.5
2.5
50.0
0.0
47.5
-2.5
-5.0
45.0
% y/y
Inde
eks
55.0
-7.5
42.5
-10.0
40.0
-12.5
37.5
-15.0
Industrial production, OECD, right hand scale
35.0
-17.5
32.5
-20.0
98
99
00
01
02
03
04
05
06
07
08
09
Source: Reuters EcoWin
5
US ISM Manufacturing
80
80
75
75
Ind
dex
ISM Manufacturing
70
70
65
65
60
60
55
55
50
50
45
45
40
40
35
35
30
30
25
Note: Skraverede områder markerer recessioner i amerikansk økonomi
50
55
60
65
70
75
25
80
85
90
95
00
05
Source: Reuters EcoWin
6
SP500 following ISM troughs (1948-2008)
1982
1949
PMIs have bounced back, indicating a potential trough for the market in Q1 2009
Risk/reward ratio is clearly positive for the S&P 500 once the ISM has troughed
7
Shift in focus of the analysts and investors
Focus is normally on the ”growth story”
−
−
−
−
Future earnings potential and opportunities
Microeconomic focus on the P&L of the company and its peer group
Focus on the upcomming quarter or the financial year
Generally high risk appetite
Shift to multidimensional risk assessment
−
−
−
−
Emphasis on macroeconomic drivers and cyclicality
Focus shifting to balance sheet metrics
Focus on both the short and long term risks
Unprecedented risk aversion
Emerging focus on restructuring case and recovery stories
8
Pessimism and risk aversion continues to dominate
Shift from earnings to cash flow generation
Cost cutting potential rather than growth potential
Constrained access to credit/funding => cash is king again
Focus on cyclical resilience and defensive qualities
Risk from key customers and other counterparty risks
Questionable value of intangible/tangible assets => Impairment risk
Risk from overhang/forced selling => focus on ownership structure
Currency, input costs, and interest rate risks
9
If you don’t croak the market will assume the worst
10
Do not avoid the painful issues
Avoiding the market will only prolong the recovery time and increase volatility
Facing the financial community maintains and builds trust/credibility
It may be unwise to give specific guidance but provide planning assumptions
Articulate clearly how management is adapting to the new environment
Underpin quality of management - difficult times test its capability
Proactive companies who dares to be noticed are likely to recover fastest
11
Discuss the balance sheet
Explicit details on debt structure and covenants
Disclose additional credit facilities and relations with banks
Impairment risk
−
−
−
−
Receivables
Inventories
Goodwill and other intangibles
Plant & property
Working capital management
− Inventory reductions
− Tightened receivables
− Renegotiation of payment terms
Divestment of underperforming units
12
Discuss the P&L
Top-line
−
−
−
−
−
Give sensitivities and ranges rather than specific guidance
Disclose proportion of cyclical exposure and how cyclical
Give orderbook and pipeline updates
Break-down on segments with particular risk
Give sell-through data if available to quantify destocking
Margins
−
−
−
−
−
Give sensitivities and ranges rather than specific guidance
Impact of input cost fluctuations and inventory swings (IPO)
Underabsorption of fixed costs – give incremental gross margin
Quantify short and long-term potential for cost cutting
Semi-variability of operating cost components
Quantify major non-recurring restructuring cost items
Funding costs and currency adjustments
13
IR Communication in a bear market
Stay visible and keep up activity level
− Interest – also international - will re-emerge
− Investor targeting: hedge funds unlikely to recover fully
Be factual and give bad with the good
Fight any rumours with the facts
Do not be quick to make promises – provide realistic targets
Do not focus much on the long-term story yet
Your story is your business – not the stock price
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Corporate Relations Team - Contacts
LONDON
Marianna Brooks
tel: +44 20 7578 8181
mobile: +44 (0) 7896 416 290
e-mail: [email protected]
Pernilla Lindén
tel: +44 20 7578 8175
mobile: +44 (0) 7717 532 031
e-mail: [email protected]
Jane Playfair
tel: +44 20 7578 8179
mobile: +44 (0) 7899 912 538
e-mail: [email protected]
Sarah Macklin
tel: +44 20 7578 8182
e-mail: [email protected]
Cherisse Cohen
tel: +44 20 7578 8281
e-mail: [email protected]
COPENHAGEN
NEW YORK
Lilla Szöcs
Johanna Jacobson
tel: +45 33418573
tel: +1 212 326 2776
mobile: +45 26301573
mobile: +1 917 291 6390
e-mail: [email protected]
e-mall: [email protected]
Louise Gylling Jørgensen
HELSINKI
tel: +45 33418296
Anne Jussilainen
mobile: +45 26742569
tel: +358 10 444 2233
e-mail: [email protected]
mobile: +358 505380493
STOCKHOLM
e-mail: [email protected]
Louise Berggren
Merja Ruissalo-Kettunen
tel: +46 8 701 2572
tel: +358 10 444 2202
mobile: +46 70 563 3725
mobile: +358 503094099
e-mail: [email protected]
e-mail: [email protected]
Ylva Brundin
OSLO
tel: +46 8 701 5058
Simone Helgesen
mobile: +46 70 318 6755
tel: +47 228 23015
e-mail: [email protected]
mobile: +47 92628959
Terese Loon
e-mail: [email protected]
tel: +46 8 701 2872
Liv-Merethe Olsen
mobile: +46 70 267 6487
tel: +47 22 823033
e-mail: [email protected]
mobile: +47 93227115
Annica Ridell
e-mail: [email protected]
tel: +46 8 701 1092
mobile: +46 70 294 1092
e-mail: [email protected]
15
Thank you
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