European companies feel misunderstood

Fewer than a quarter of European listed companies believe that their recent
performance is reflected in their share price, with just 16% believing that
analysts really understand their company. Worryingly, 23% believe that analysts
have either poor, or no, knowledge of their organisations.

The
research , carried out by accountancy firm RSM Robson Rhodes,
investigated the views of 190 European companies, representing a total market
capitalisation of £80.7bn. While more than 80% of responding companies said that
analysts’ perceptions of their company were accurate, just 16% felt they really
understand the company.

The survey found that companies still focus on earnings per share and return
on capital employed. “While these remain important metrics for analysts
assessing a company’s value, it is also true that, under IFRS and influenced by
private equity investment, stock markets are focusing more on medium-term cash
flow,” Robson Rhodes said.

Just 51% of respondents said their share price was important to strategic
decision-making, and 12% said their strategy was not understood by the market.

The adoption of IFRS has thrown up a number of issues which are only just
being addressed. “These issues relate to the equity market’s continued use of
the income statement and balance sheet as the basis for value,” the research
claims. “Given that IFRS mandates a number of accounting items which must be
included in these schedules, the tendency to adjust key headline metrics has
arguably increased.”

While finance directors have historically been the point of contact for
analysts, this could change because of the development of investor relations as
a discipline within corporate communications. According to the research, CEOs
spend about 20 hours per month on stock market/investor relations
communications, FDs 24 hours and chairmen just nine.