Smaller firms hit hard by decline in analyst coverage

The UK’s listed companies have been hit hard by an “accelerated decline” in both the quantity and quality of sell-side analyst research following the introduction of the MiFID II directive.

That’s according to new research from Citigate Dewe Rogerson’s dedicated Investor Relations Practice.

Citigate Dewe Rogerson said that overall, 52% of UK companies in its 11th Annual IR Survey reported a year-on-year decline in the number of analysts covering them and 38% reported a fall in the quality of research.

For European companies excluding the UK, the figures were 39% and 20%, respectively.

MiFID II was introduced in January 2018 across the EU to make the financial industry more transparent.

A key aspect of the new regulation was to unbundle products brokerage firms provide, which meant that sell-side research could no longer be paid for using trading commissions. 

Citigate Dewe Rogerson believes the issue is particularly acute for smaller and medium-sized listed companies, which already faced challenges in gaining institutional investor attention. 

Sandra Novakov, Head of Investor Relations at Citigate Dewe Rogerson, says: “Analysts scrutinise companies, and this helpfully draws attention to them.

“The more pronounced decline in sell-side research in the UK means that high-quality, medium-sized and smaller companies face a very real risk that they drop off the radar of institutional investors.

“This can lead to a reduction in liquidity that is hard to recover from.

“The good news is that IR professionals increasingly see this danger and are taking proactive steps to address it, such as actively articulating their investment case and increasing roadshow frequency and effectiveness. It signals a change in approach.”

Citigate Dewe Rogerson’s 11th Annual IR Survey, which will be published in full later this month, incorporates feedback from 479 Investor Relations Officers (IROs) at leading companies across the world, including 242 from Europe.