Nurture your financial brand

Optimal shareholder structure

We aim to ensure that our clients get an optimal shareholder structure and build a strong and well-positioned financial brand that is not about the short-term gains. This demands a proactive approach to maintain a deep and broad market interest in our corporate clients.

The deeper and broader the client’s shareholder base is, the less volatility and more liquidity its stock should experience. Outlined below is a graphic of our approach, based on three key factors that underpin the quality of trading in a stock.

Cultivate a fair value rather than high value

If this approach is handled properly it will not just minimize the daily share price swings, but ultimately contribute to a realistic valuation based on facts rather than dreams. Here research coverage plays an important role in facilitating understanding and valuation awareness. Making it easier to get on investors’ radar and adjust their estimates, regardless of whether it means decrease or increase in the share price.

Overvaluation can be as negative as undervaluation because it can lead to a sudden drop in price as well as an increased price and volume volatility when additional information becomes available. The stock chart below depicts share price movement of two fictive and identical companies in order to showcase how share price volatility impacts market value. A reduction of volatility corresponds to a reduction of capital costs, and hence a higher valuation.

Distribution that matters

Once Redeye’s research is published it is distributed to a vast audience to help build awareness about our clients. This includes our proprietary register of many thousands of members in our investor network and leading institutional research libraries such as Bloomberg and Thomson Reuters. We also allow links to our research from a variety of retail websites as well as our clients' own website and investor relations pages.

The graphic below illustrates the importance and breadth of Redeye’s distribution network of institutional and sophisticated retail investors, who many times are below the priority line of most investment banks.

Don’t forget to look out for the little guy

At the outset of each mandate we review the shareholder structure and suggest ways to widen and improve the investor base. Naturally, management wants to spend most of their time courting institutional investors. The importance of retail investors is often overlooked.

However, having retail investors in the mix is often desirable. Retail investors are viewed as loyal, long-term investors with volatility-killing powers, stable liquidity providers, and they also contribute to a company’s name recognition. Institutions often buy or sell en masse, so retail investors help dampen volatility when news hits, whether positive or negative.