Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Wednesday, August 24, 2005

Non financial reporting – sell side firms respond in housing

Looks like the word is getting out that institutional investors are determined to see more ‘non financial reporting’ from the sell side. (see posting dated July 8th). These are research reports that have the potential to impact companies' financial performance or reputation in a material way, yet are generally not part of traditional fundamental analysis.

Extra-financial issues typically include corporate governance, environmental and social areas. They may be specific to a company, an industry or cut across several industry-groups. There is increasing agreement that a substantive part of a company's value is related to its extra-financial performance or intangibles.
Research reports written by the sell side analysts used to focus mainly on price-earnings ratios, producing models that estimate the future earnings of issuers.
Not anymore. In their missives to clients, investment strategists are increasingly shunning stocks and devoting more ink to the kinds of extra financial research listed above.
A good example is in the booming housing sector. Recent publications include a 35-page midyear outlook to predicting what the economic and financial landscape might look like after home prices peak. Money manager Cumberland Advisors published a three-part series on the real estate bubble. Citigroup's chief U.S. equity strategist Tobias Levkovich penned a 14-page report headlined: "Homesick?"
The institutions would argue that this presents an opportunity for companies to enhance the understanding of the value of their companies. By creating and distributing innovative research about their own companies, and about their own industry, they win the attention of both the sell side analysts – and of the institutions. Which enhances their own valuation…

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