Netcomm Wireless is experiencing rapid growth and popularity following the adoption of a business strategy that has seen it significantly grow its institutional investor base. Domini Stuart reports for Listed@ASX.
In 2012, Netcomm Wireless Limited was a viable and profitable business. Its broadband products were being snapped up by major telecommunications carriers, core network providers and system integrators around the world and it was consistently winning awards for innovation. But too few people were paying attention.
“We had been building the business successfully for many years and we made the mistake of assuming investors, analysts and brokers would all appreciate what we were doing,” says chief executive officer and managing director, David Stewart.
“Then our new chairman, Justin Milne, suggested we take a more proactive approach by ramping up our investor relations strategy.”
With the help of investor relations advisory firm Market Eye they developed a new strategy. Over the next three years, they went from no institutional investment at all to more than 20 per cent.
“We expect that to keep on growing, especially now our market cap is above $200 million – a lot of investors can’t touch any company with a market cap below $100 million,” says CFO, Ken Sheridan. “And, now we have firms like Blue Ocean Equities, Select Equities, Moelis and Wilson HTM on board, we also have a lot more credibility.”
Stewart sees the fact that the share price has risen to well over $1.50 as a good indication that their investor relations strategy is working.
“Yes, we’ve been winning business at the same time but your wins will only attract market interest if they’re shared with the right people at the right time and in the right format,” he says.
THE HARD YARDS
That doesn’t mean success came easily. “One problem we faced was the size of the company,” says Sheridan. “In the early days we had a market cap of about $25 million, so it was hard to get anyone’s attention. Another was the fact that the technology sector is poorly understood in Australia and, as we’re the only company of its type in the market, very few people had any idea of what we were doing.”
For almost two years Stewart and Sheridan pounded pavements, knocked on the doors of brokers, analysts and investors and grabbed every opportunity to explain what they had to offer.
“One of the most important messages was that we’re in this for the long term,” says Stewart. “Because technology moves very quickly some people consider it to be a risky investment – they’re concerned that what you’re doing today will be obsolete tomorrow.
“We started as a dial-up modem manufacturer and it’s true that a lot of the companies that were doing the same thing no longer exist. But we moved into fixed broadband ADSL then cellular wireless devices because that’s the way the technology was evolving. I describe us as technology agnostic – rather than being stuck in one rut we stay on the evolutionary curve,” he says.
Introductions and suggestions for people to approach provided by the advisory firm also proved useful.
“That was very helpful but there were still days when we wondered whether we were wasting our time,” says Sheridan.
When they finally did start to see sparks of genuine interest it was clear that their persistence had paid off.
“We often heard that it was only after the fourth presentation that things had started to fall into place,” Sheridan continues. “As the new business associated with the fixed wireless component of the National Broadband Network (NBN) was being finalised, they could finally understand what we had been talking about.”
Now they regard education as an ongoing process. “There are a lot of other companies to invest in so it’s important to stay on the radar – we go back with updates at least every three or six months,” says Stewart.
They also maintain a dialogue with shareholders. “We want to talk to them in the context of what they find most useful so it’s important to know who they are,” says Sheridan. “A quarterly shareholder analysis means we’re not shooting in the dark.”
MANAGING THE MESSSAGE
Regular contact also helps to build solid relationships. “We’re either asking people to invest in us or to influence other people to invest in us so trust and confidence are crucial,” says Stewart.
This includes managing market expectations. “One of the first things I had to do when I joined NetComm was announce a profit downgrade,” says Sheridan. “Things like that undermine credibility. It’s certainly not something I want to repeat.”
Both he and Stewart describe themselves as naturally conservative. “We’re very careful about what we say to brokers, investors and analysts,” he says. “We believe in taking a very straightforward and transparent approach without embellishing anything. Not everything will work out exactly as you forecast but any variation is much less likely to damage your reputation if you’re open and honest in your communications.”
NetComm now executes a yearly investor relations plan with very clear objectives. “Components of our investor relations activities are built into both David’s and my KPIs so they’re measurable things that the board can monitor and manage,” says Sheridan.
The plan includes the level of coverage they’re seeking and from which brokers. “We’re looking for markets that understand the business and value what we do,” says Sheridan. “So, rather than trying to match up investors with geographies in which we operate such as Japan, the Middle East and Europe, we’re focusing our attention on the US.”
Sheridan advises other companies not to underestimate the importance of investor relations or the value of professional help. “Thinking you can do it yourself is a bit like thinking you can do your own taxes,” he continues. “Unless you’re an expert it’s likely you won’t get it right.”
But an ongoing commitment creates an inevitable tension between managing the market and managing the business.
“I would say we put a disproportionate amount of time into market awareness,” says Sheridan. “We’ve done more than 350 presentations here and in the US in the last two years alone because we believe these are the dues we have to pay to attract and retain the right attention. Does that mean we haven’t spent time on the business? Absolutely not. It does mean we have been working long hours.”