Many companies wouldn't last a minute with investment 'Dragons'
Published 05/08/2010 | 05:00
LET'S play a game. Let's imagine the chief executives of Ireland's listed companies are appearing on a special edition of 'Dragons' Den' looking for funding.
Like the contestants on the popular television series, they have just a few minutes to pitch their company and their dreams of future growth.
A problem many chief executives have is that they could not give a simple description of what their company does. It would be a case of count me out.
Ryanair would pass the test; cheap flights between secondary airports. So too would Greencore; sandwiches and other food you probably shouldn't eat but do. Kingspan; insulation materials. Paddy Power; gambling. Icon; clinical trials.
All these companies obey the rules first set out by legendary investor Peter Lynch, who once said shareholders ought to be able to draw with a crayon what a business does. Further, they should be able to explain the business clearly in 60 seconds or less. And if they can't, they shouldn't buy.
That's the challenge facing many Irish companies at the moment: to explain what they do. Judging by the ISEQ Overall Index, which is where it was at the start of the year, too many companies are not making a good fist of explaining what they do to themselves or potential shareholders.
Of course, uncertainty about the country's ability to fund itself is playing on investors' fears, but Irish companies have been particularly bad at finding a new narrative now that the old one about Europe's fast- growing economy and young, mobile workforce is no longer too popular or relevant.
Can anybody say, for example, what the banks' strategies are? In two minutes. What would Bank of Ireland's Richie Boucher or AIB's Colm Doherty say if they appeared on 'Dragons' Den'?
Indeed, would Mr Doherty stand in front of the dragons, or would it be executive chairman Dan O'Connor. They don't lend. They want to sell their foreign units. What is their purpose these days, beyond survival? No wonder their share prices are below a euro.
It is much the same problem with CRH (too many products, too many markets); C&C (they seem to sell half the company every two years to buy new toys); SiteServe (what do they do again?) and even poor old Boundary Capital, the latest company to exit ignominiously from the stock exchange leaving the rest of us wondering why they were allowed to linger on for such a long time.
A lot of the oil companies need to simplify their mission statements. They have too much drilling in too many countries rather than following the lead of rivals such as PetroNeft (shares up 140pc in the past 12 months) which specialises in Siberia.
There are exceptions, of course. DCC has managed to remain an old-style conglomerate and keep investors sweet by producing steady returns, but it is an exception few companies can hope to emulate.
Most companies need to get their investor relations people to spell out simply and clearly to prospective shareholders how their business works. And then keep doing it while also ensuring that their companies are as simple as they claim.
Perhaps if they answered this challenge, we might finally see some upwards movement on the ISEQ and some value creation rather than the value destruction that has been such a baleful characteristic of listed Irish companies over the past four years.