Ahead of the Organization of the Petroleum Exporting Countries’ (OPEC) meeting at the end of May, volatility was the only certainty for oil stocks. Tamar Essner, head of the global energy sector surveillance team at Nasdaq Corporate Solutions, advised affected IROs to recognize the pressure on their stocks for what it is.
Essner noted to clients that large price swings had “nothing to do with the fundamentals of an individual company,” but rather stemmed from a lack of conviction by most investors to commit capital until they gained clarity on the direction of oil prices coming out of the May 25 meeting in Vienna.
For example, she expected many portfolio managers with long-held positions in oil stocks may need to cut the risk in their portfolios by reducing energy sector holdings. Essner cautioned that IROs should prepare their management team for that reality: setting internal expectations while remaining proactive with investors during this period of uncertainty and increased volatility.
For energy sector IROs, relying on familiar practices “is not good enough anymore,” Essner says. Given the pressure on energy stocks, IROs must think more strategically, focusing their investor communication on the factors that differentiate their stock from the sector as a whole.
“For those who can, it’s important to convey the story about cash flow neutrality and return on capital,” Essner advises. This strategic perspective would empower an IRO to tell investors, “OPEC can do what it wants. We can be profitable, grow, and/or sustain our dividend, in a sub-$50-a-barrel environment.” For those not in this position, it’s important to clearly articulate the catalysts that will drive share price higher through the self-help actions that your company is taking.
In addition, Essner advises IROs to think beyond messaging. “It’s incumbent upon IROs to differentiate their stories and make sure investors understand, but it’s also important to think strategically about who they’re focused on,” she explains. Instead of returning to familiar energy sector portfolio managers who have been losing assets for the past three years in the worst-performing sector, Essner advises her clients to search out generalists with more assets under management, who are already underweight the sector, as they may be more open to the compelling valuation story that IROs with beaten-down energy stocks have to tell.
Linking ownership surveillance data with targeting analysis can arm IROs with insight and actionable intelligence they need to focus their efforts, potentially taking the sting out of OPEC-related market jitters. Nasdaq’s experienced targeting analysts understand the investment behavior and preferences of individual managers. With more than 100 industry clients globally, Nasdaq’s sector coverage across the entire energy value chain delivers a unique level of insight into market trends, Essner notes. As head of the team, a key part of Essner’s job is knowing both who is – and isn’t – investing in the sector and why.
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