IR Magazine: Should You Pay for Equity Research

Should you pay for equity research?

 
Sell-side cutbacks have left more companies contemplating issuer-sponsored equity research. But not all providers are equal
As many companies know through painful experience, a lack of research coverage is a serious impediment to attracting new investors. Without it, investors may view a business as unvetted or too difficult to value. 
View the balance of the article, in which Tim Human included some of our thoughts, here: http://www.irmagazine.com/articles/sell-side/20098/should-you-pay-equity-research/
Additional thoughts: We would argue that issuer-paid research is no more biased than most sell-side research which is provided by investment banks that have raised money for the subject company and/or hope to secure other fee income from banking, M&A or other advisory work. No one shows up to Wall Street to work for free. Everyone has some sort of agenda. 
Other key benefits of such research is that it can provide forward earnings estimates – in major earnings estimate services like First Call – for Companies that have little or no formal research coverage and therefore have no estimates or estimate consensus. Such estimates are helpful to investors who are screening for stocks or taking an initial look at a company – it helps them gauge the growth rate and efficiency of the organization. 
The other benefit is helping to bring disparate information all into one place – financials, management comments and strategy, recent releases, industry valuation metrics, competitive and industry factors, and valuation parameters. It’s ‘Cliff Notes’ for equities. I expect that investors will do their own work to analyze and value the Company – but this research helps get you their radar screen.  It’s principal benefit is in idea generation.
Lastly, as there could be alleged some aspect of “implied endorsement” when a company distributes a report that has been written on them – this concern makes most companies refrain from distributing either sell-side or company-sponsored research reports. Given this dynamic, the distribution channels the research provider brings to the effort are particularly important. If a research report is issued in the forest – few will read it without some proactive intervention.  Finally, ‘marketing’ a research report is also very important.  That helps connect all the dots – putting the Company and management together with the report and the investor – to ensure that the analyst and/or PM really focus on the story.  It’s a multi-step process leading up to actually getting an investor engaged in a new story. 
Our thanks to Tim Human for raising this important issue – and showing how different times may require different measures.
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