Update on Mifid II implications
Following the F&P Quarterly ‘Company commissioned equity research – from ugly duckling to swan?’ issued in March, the effects of Mifid II continue to increase and we have received many questions on how to approach them. In this special edition of F&P Quarterly, you will find additional insights on the latest developments.
Continued upturn for company commissioned equity research
Since our last update, the market for commissioned equity research has continued to expand with additional providers entering the arena. What once was a product provided by small independent niche players targeted to retail clients is now quickly adopted by the large investment banks, who surely will leverage their know-how from traditional equity research when developing their services. With a majority of the established banks now offering a commissioned product, small and mid-cap companies with insufficient analyst coverage should look to this as an opportunity when planning their long-term IR strategy.
Consensus – not what it used to be
Another consequence from the new regulation – that became very obvious in connection with the Q1 reporting season – was that an increasing number of the established banks no longer share their earnings estimates to the consensus providers (or any other third parties), thus making the official consensus less reliable. We advise to follow this development closely both from an investor and company perspective. If consensus only comprises a few estimates from the lower-ranked research providers, it might not give an accurate picture of the earnings expectations. A direct consequence of a low-quality consensus will be increased pressure on the IR departments both in terms of information disclosure and information gathering. It will be important to avoid profit warnings that are uncalled for due to information discrepancies between the official consensus (with only a few contributors) and the actual consensus.