Cross-trading on the OTC Markets is shown to diversify a company’s shareholder base and enhance liquidity on its home market.
Less often discussed, but equally measurable, are the benefits that can be realized in terms of
corporate strategy formulation and stronger positioning in the global race for capital, all of which can help boost the return on investment of your cross-trading. But none of these happen on their own.
The challenge can be compared to a company vying for consumer attention in an already crowded and highly competitive space. Some fail while others succeed.
Cross-trading companies are no different. Think about it: Over 12,000 securities are currently traded on the OTC Markets (and this number continues to grow). What’s more, according to the World Federation of Exchanges, the number of exchange-listed companies worldwide exceeded 56,000 in February 2023.
What’s the secret of the most successful companies? A strategic approach to Investor Relations, regardless of the industry they operate in or the size of their market capitalization.
Here is how companies can boost their return on investment of cross-trading on OTC Markets.
Give your earnings release a facelift
Given that the US is the world’s largest equity market, chances are the investors you are targeting will first compare your earnings announcements with those of the US companies they are already invested in or are following.
In order to achieve a significant level of reach, it’s imperative that you take steps beyond announcing a good set of numbers.
Improving your results announcement, in format and content, is one of the most effective ways to increase your visibility on OTC Markets while also raising your corporate profile on your home exchange.
Most companies tend to think that investors, analysts and the media know them already. They therefore make little effort to use plain, jargon-free language to describe their activities and explain
their financial performance in layman’s terms. Thus, they lose out on the opportunity to attract a wider pool of potential shareholders, who would be put off by the announcement because it is too difficult or technical to digest.
Furthermore, it is common for emerging or frontier markets to avoid prescribing press releases as a means of regulatory disclosure. There, the legal means of regulatory filing mostly consists of poorly presented tables and a limited narrative. It is highly unlikely that it will get the attention of US investors.
On the contrary, a well-drafted, widely distributed press release designed to support a results-focused announcement, which meets the requirements of the home exchange while being structured in a way that is familiar to US investors, is a win-win for any company.
How do you do that?
Step One: Perform a benchmarking analysis.
Just as you benchmark your products, services and marketing tools against your competitors’, you should apply the same tactics to improve your Investor Relations collateral, from the earnings announcement to the corporate website:
- Who are your direct peers and competitors by industry, market capitalization and region?
- What does their latest earnings release look like? What are the key messages, or the operational and financial performance metrics they highlight? How do they articulate their strategy? Do they provide guidance? A quote by the CEO? The details for dialing in to an earnings call?
- What are the main features of the Investor Relations section of their corporate website?
- Do they provide a contact for Investor Relations and media enquiries?
- How does their liquidity and valuation compare with yours? Any discrepancy in trading multiples?
- Do their announcements show up prominently on Google searches? Or on notable media outlets like Yahoo Finance?
Step Two: Incorporate the results of this analysis into your Investor Relations outreach efforts while maintaining compliance with your home market.
In so doing, it is critical that you adopt the right mindset regarding compliance requirements: they offer many transparency opportunities for you to seize, with a measurable impact on your valuation. Companies the world over tend to place the wrong emphasis on what they deem to be competitive information, that is information that they don’t want their competitors to know… A clear distinction between what constitutes trade secrets and what can boost your long-term value is arguably a fine line to tread. But it is worth the effort.
Indeed, disclosure of key information to the market is a powerful tool that can help shape investor sentiment and therefore, directly influence the valuation of a company. As such, it is an essential part of any Investor Relations strategy.
For instance, if one of your peers discloses a metric that your company does not discuss (such as revenue per square meters, for instance, or net debt to EBITDA, or a geographical breakdown of sales), how about you start disclosing it too? Thinking like an analyst and offering the right ratios is often all that’s needed.
Step Three: Rewrite your most recent results announcement as a template you are proud of.
It is easier than starting from a fresh set of numbers and will facilitate the validation process internally.
Your home market listing will benefit greatly from a professionally articulated earnings announcement. Why is that?
Investors tend to invest most of their portfolio in domestic equities. It is known as the home country bias in financial theory: it reflects investors’ preference for investing in what they are already familiar with, where they believe information is more readily available and reliable, rather than moving into the unknown. It is commonly believed to be driven by emotions rather than objectivity and affects individual investors as well as experienced and professional investors, such as mutual fund managers.
A macroeconomic crisis, be it in your home country or global, always leads to foreign shareholders retreating to their own countries, which may lower your share price. World-class Investor Relations will go a long way in building the strong domestic shareholder base you will need in these circ*mstances over which are out of your control.
Key benefit of a robust earnings announcement: you will be more visible to OTC Markets investors, while your domestic shareholders will appreciate the change.
Leverage investor meetings to outsmart your competition
Very often, leadership teams see investor meetings as “answering questions.” It is time to shift this frame of mind: think dialogue, not Q&A. In contrast to what most companies believe, investors value a proper, two-way conversation.
List the top questions you want to ask them, so that you too have an agenda for this meeting:
- What do they like/dislike about your company?
- How does your company rank in terms of their ESG (Environmental, Social and Governance) criteria?
- What are the catalysts they are looking for before they take a stake in your company or increase their current position?
- Any strategic suggestion they would be willing to share with you, such as external growth or divestments opportunities?
- What does this investor view as your company’s key strengths, weaknesses, opportunities and/or threats?
It is similar to conducting an investor perception study, except it is free and immediately available.
As you prepare for a meeting with any investor in the framework of your cross-trading on OTC Markets, you will want to drive the conversation, especially during in-person meetings. One of the most effective, and often underutilized methods of boosting the return of your cross-border trading is to gather competitive intelligence during a one-to-one meeting. Don’t miss out on this opportunity to ask investors about the competitive space you are operating in, because it is probable that, unlike you, they have met with your competitors before. They therefore have first-hand knowledge that is available for free. There is no harm in asking them outright what your competitors have shared about the current state of demand, their most pressing challenges, the growth potential of a given end market, etc. Also, pay attention to how investors formulate their questions to you: it might indicate the desire to double check what they have heard elsewhere, thus granting you an exclusive, albeit indirect, insight into your competitors’ co*ckpit.
These are tactics you can use in many ways from strengthening your equity story to rethinking your corporate strategy, all of which will benefit both your home market and cross-trading on OTC Markets. At FINEO, we help our clients adopt a strategic approach to investor relations that will ensure their home market listing and cross-trading on OTC Markets mutually enrich and cross-pollinate each other. This is why embracing this mindset can help lead to a positive and lasting ROI.
This article was contributed by Anne Guimard, PhD, is the Founder and CEO ofFINEOInvestor Relations Advisors.
