The Value of Research
What is
the value of equity research? For all intents and purposes,
it is recognition – recognition by investors and decision makers who
purchase securities. Compared with uncovered peers, companies
with equity coverage exhibit greater market valuations, greater trading activity
and realize a lower cost of capital. A recent study
published in the Financial Analysts Journal (FAJ) indicates that the capital
markets discount companies lacking recognition by more than one third, resulting
in a higher cost of capital.
The Information Divide
Wall
Street research has become focused on large, very liquid stocks and ignores the
majority of listed companies (more than 60% of which have no coverage).
To some degree, this was always the case, but the environment has
deteriorated due to industry consolidation, regulatory changes (delinking
banking and research among others), and the decline in trading commissions
(which subsidized research) by approximately 50% over the last several years.
Wall Street firms responded by increasing their focus on the larger, more
lucrative stocks. Consequently, the time and expense management teams of public
companies must commit to finding potential investors has increased considerably.
The
paradox of this situation is that the value of equity research has increased,
but traditional models cannot accommodate the need in the current environment.
CGR Bridges the Information Divide
CGR seeks to bridge the exposure gap by providing our clients the kind of
visibility that leads to greater trading volumes and market cap appreciation.
CGR’s model provides our clients’ information to the broadest audience
possible, at a very reasonable cost (particularly compared to traditional IR
fees). Unlike many “paid-for” firms, CGR assigns a senior analyst
with over 10 years experience to cover clients and our likewise experienced
institutional salespeople arrange targeted management meetings and contact.
With a tailored CGR research and access program, the exposure multiple is
dramatically larger and cost effective, versus “paid for research” and IR
firms.
