IN TIMES OF DISCOUNTS YOU HAVE TO GRIT YOUR TEETH

Besides being one of his best-remembered gags, Tip y Coll’s “baja la Bolsa, sube el pescado” has become a kind of inexorable curse. It comes to say that when inflation soars, stock prices plummet and there’s nothing else to do. If anything, stick your head under your wing and wait for the weather to clear. In the face of so much fatalism, communication is often (and can be) the best remedy. Communicating where the problem lies, how to tackle it and how it can reinforce a corporate strategy always pays off.

Market ups and downs are usually temporary, sometimes even cyclical, and good companies tend to hold their own and recover over time, even if they suffer share price slumps at certain times.

As Benjamin Graham said, “Mr. Market is a schizophrenic in the short term, but he recovers his sanity in the long term”, and the father of value investing was right. Possibly the best investment is one that has the focus on the long term and on understanding and understanding the fundamentals of those companies in which one invests and of which one becomes a co-owner through that investment.

The strategy that companies must work on in order to be well positioned in this context obviously involves having a solid, resilient, dynamic and consistent business model, but also the way we present it to the investment community. The strategic communication approach to be followed, based on the company’s value proposition or equity story, should be leveraged mainly on 3 axes:

The company’s value proposition or equity story, should be leveraged mainly on 3 axes:

1. Business: essentially a company is what it does. It is essential to make our business model known and explain, in detail, why our product or service offers advantages to our customers and the social ecosystem that make it relevant and necessary.
2. Management: a company is what it does, and also who does it. And especially important, especially for the investment community, is to know who manages it. It is essential for the markets to know the vision of the management, the strategy to be implemented by the company and the final purpose it will seek to achieve from its area of activity.
3. Fundamentals: a company is what it does, and also who does it.
4. Fundamental: the reliability of our business model should not come exclusively from our ability to meet the commercial objectives set. From the inside, the company must have an impeccable balance sheet, which will also be one of the key messages in the corporate narrative.

The communication strategy that companies develop today, are the future reflection of how their stakeholders will perceive them in the future, and the activation of the appropriate channels and messages in the implementation of this strategy, a critical issue.

Walking the tightrope

And it is precisely in one of those moments of uncertainty and distrust in the markets in which we currently find ourselves. According to Refinitiv data, as of October 20, 2022 the main Spanish stock market index, the Ibex 35, is trading at 7,619 points, down -13.04% year-to-date (or Year to date – YTD). For reference, the S&P500 is trading YTD at 3,695 points, down -22.96%; the Nasdaq at 10,680, down -32.54% YTD; and the Euro Stoxx 50 is trading at 3,468 points, down -19.94%.

It is not surprising considering all the uncertainty and volatility that, almost by now we are used to, we are having to live and experience in recent years: pandemic, war in Ukraine, energy prices, etcetera, coupled with a scenario of rising interest rates not seen in the last decade.

With regard to the companies that make up this index, the discount at which they are trading compared to the consensus price of the stock market analysts who regularly cover them is, on average, 26%.

Currently, all Ibex 35 companies are trading at a discount (except for the taken-over Siemens Gamesa and Naturgy), with prominent players such as Santander (-33%), Cellnex (-47%), Grifols (-59%), Arcelor Mittal (-44%) and Laboratorios Rovi (-41%), to name just a few.

All the major sectors represented in the Ibex 35 are experiencing a similar situation:

In a situation like the one we are in, what should these “good companies” do to get over the hump? How should they approach their positioning strategies in the medium and long term?

The answer is clear: it is time to forget about the daily share price and focus on moving our current value proposition forward. Once the market’s pace changes and investors return to the arena hungry for opportunity and profitability, with full portfolios and a mandate from their clients to move and grow their wealth, their eyes will be drawn to the best-positioned options.

In a globalized and fully democratized world in terms of access to content, where the line between official and unofficial sources of information is increasingly blurred, those organizations that want to reach their investors, shareholders and key target audiences will need to have a clear and defined strategic vision, with the help of the best experts in the development of reputational positioning in the markets.

Back to the references to value investing, in the words of one of Spain’s leading asset managers, Francisco García Paramés, “investment is a long-term business where patience is the key to profitability.

If investment, like management, should focus on the long term, so should the strategic reputational vision and positioning of companies. And now, right now, is the time to be brave, grit our teeth, and work with an eye to our future recognition.

¹ Data collected from the Refinitiv financial reporting platform as of October 20, 2022.

Article prepared by Ignacio Colmenero, senior consultant in Financial Communication at LLYC.