01 Aug Frankfurt Notes – Equity Story: much more than a list of arguments
Almost every listed company can claim to have a coherent equity story. But many company board members or IR managers know how easily they get embarrassed when asked about this. Despite a longer than usual pause for thought, the answer is often not very structured and ends in a long and complex description of the company, its positioning and its advantages. The equity story of a company should above all be catchy and clear – and thus easy to remember and simple to present. The individual building blocks – we like to call them arguments – should build on each other logically and in sum be unmistakably associated with the company.
Nevertheless – as practice proves time and again – it is apparently more difficult than one might think for companies to develop a clear, individual equity story. Many portfolio managers regularly confirm this in discussions with us.
Let’s start from the beginning and agree on a definition of the term equity story. Our proposal for this is as follows:
The equity story is an argumentation tool used to promote an investment in the company’s equity to capital market participants, especially analysts and investors.
The equity story primarily answers the question of which arguments speak for a long-term investment in a company. Therefore, the focus is primarily on reasons for a particularly promising business model or a sustainable competitive advantage that lead, for example, to particularly high growth, attractive margins or an above-average cash flow.
The equity story should not be confused with the investment highlights, because the equity story is, in our view, of a much longer-term nature. This does not mean that the equity story cannot – or even must – be adjusted over time.
Some companies succeed in the capital market in supplementing their equity story with a catchy, positive narrative. Would you like a few positive examples? Coca Cola, for example, is often automatically associated with long-term earnings and dividend growth on the capital market. This is explained by the company’s ability to adapt quickly and successfully to new market conditions. Apple is credited with enormous innovative strength, which extends or secures its strong competitive position in the long term. And on the capital market side, Munich Re is associated with a perception of boundless stability, despite the fact that reinsurance business per se can be burdened with quite significant major losses – for example from natural events – which can lead to high volatility in the company’s results.
How does the investor relations department succeed in practice in placing this “argumentation tool” successfully and with the widest possible distribution on the capital market? In the following we give six recommendations for the successful establishment of the equity story.
- Use a simple and understandable presentation. The clearer and simpler the messages, the more likely your equity story will be initially understood and better remembered by your addressees than an explanation with high complexity. In this way, you considerably increase the chance that your messages will be passed on correctly and go viral successfully. Do not go into too much detail. Keep it to a handful of arguments that are easy to remember.
- Build the messages within your equity story on each other in a targeted way. This makes it easier to understand your equity story as a whole. Draw an arc of tension across your presentation. Your addressees will understand the messages much better thanks to this “supplied” logic.
- Use all communication formats to spread your equity story. Each communication format fulfils different tasks. With social media you expand your reach considerably – and reach professional multipliers via LinkedIn, via podcasts, Youtube or Twitter/X also private investors and younger, digitally affine addressees . However, all these formats have in common that you can transport or underpin your equity story with messages and figures. Make use of this potential and make sure that the presentation is appropriate to the format and addressee.
- Make sure your messages are consistent across formats. Every type of corporate communication, from the corporate news to the annual report to the website, should pick up on the elements of your equity story and contribute to it. It is important that your statements are always coherent and not open to interpretation. This way, your equity story will be better understood and comprehensible.
- Create a short but concise presentation of your equity story and put it on your homepage. The presentation should not be much more than 15 pages long. Focus on the core arguments of your business model. Give clear messages (ideally already in the headline) and support your messages with understandable arguments and figures. Do not go into details. Appropriate enquiries are definitely welcome. Above all, they demonstrate the addressees’ interest in your business model.
- Do not change your equity story too often. The company’s business model is usually only adjusted if there is a significant change in strategy. Investors invest in the equity story of your company and are usually not interested in constantly questioning their investments. Therefore, your equity story should also be geared towards the long term and should not require frequent changes. Instead, you should more frequently substantiate the strengths of your business model with arguments.
A successful equity story does not stand alone. It is the expression of all the company’s actions for the addressees from the capital market. A company’s equity story is therefore part of its corporate strategy. The development and preparatory communication of an equity story require a great deal of effort, but it will be worth it. We would be happy to help you with this.