Consensus Analytics

What is Consensus Analytics?

Consensus Analytics gathers and analyses analyst forecasts on behalf of companies to help them understand and communicate the market’s consensus numbers. It relieves corporate investor relations teams of much of the burden of time consuming analysis involved in this process, while keeping them and the market fully appraised of changes to consensus.  And perhaps most importantly, allows you to share with the market, consensus numbers drawn up on a consistent and timely basis.

We will tailor our service to your exact requirements, but Consensus Analytics can be distilled into two broad processes, a model based approach or a template based approach. A model based approach takes numbers from models provided by analysts allowing the assumptions behind the forecasts to be more easily reviewed and therefore helpful when comparing them to the company’s internal forecasting methodologies, providing a basis for advice on correction of mistakes and further guidance. A template based approach helps companies establish a set of ground rules and some consistency of approach.

What are the benefits to companies?

• Unless specifically guided, the market relies on consensus from 3^rd party aggregators, which leaves scope for misinterpretation and error:
• In our experience, we have found that such providers regularly use a mish-mash of  ‘as reported’ and underlying numbers so that the end-result is often meaningless;
• and secondly, the way in which the numbers are presented are at times in a different format and highlighting different metrics from how the company would like them so diluting the message that the company might want to convey;
• frequently the aggregators include out-of-date estimates;
• IR teams can spend a lot of time with aggregators getting them to correct their mistakes, which can be a frustrating experience.

• There are also considerable risks in allowing the market to rely on third party providers. Despite reporting better than expected results, a leading listed company saw its share price close down 17% on the day. The fall was attributed to concerns expressed by the management over trading in the coming months and was exacerbated by confusion over consensus published by a third party aggregator and the significantly lower consensus that the company put out – reactively. In our view, a large part of the problem would have been avoided had the company published and established the credibility of its consensus over a third party aggregator before the results announcement.
• If you adopt a template based approach to collect the data, whereby analysts provide the relevant numbers on a set template as opposed to sending you their model, it’s an opportunity for you to establish the rules rather than trying to compare different forecasting methodologies adopted by analysts.
• One of our FTSE 100 clients uses a template based approach, which accesses forecast data from up to 23 analysts across Europe. It is specifically designed to identify stress points within forecasts, line by line analysis of forecast changes and prompt the sell-side to forecast on a consistent underlying adjusted basis. Consensus Analytics has helped our client’s IR team improve their understanding of forecasts - including highlighting difficult to forecast areas - thereby enabling more focused guidance to be given. This in turn has helped to reduce the range of forecasts and ultimately narrow the scope for disappointment.
• With an agent managing the process, companies can free up a considerable amount of time and also maintain a safe-distance from the sell side during the critical close period.

What are the benefits to analysts?

• Of course the forecast is entirely down to the analyst’s discretion, but no analyst wants to be out because of a mistake in their assumptions. Consensus Analytics provides a basis for advice on the correction of mistakes.
• The template approach will help new analysts understand the drivers behind their forecasts. A number of sectors are experiencing a turnover of analysts resulting in a polarisation between very experienced analysts and junior analysts.  New analysts can quickly get to grips with forecasting metrics for your company in the knowledge that all analysts will adopt a consistent approach to specific items.  
• Analysts receive – by email or via the company’s website – the updated consensus before and following results announcements, drawn up on a consistent and timely basis.
• This consensus is not client-endorsed guidance, but is the wider communication of numbers that are already out in the public domain.

Why Citigate Dewe Rogerson?

Managing consensus involves a complex interaction between companies, regulators, analysts and investors. Companies will have their own forecasts for internal purposes to set the direction of their business, but they do not usually publish them. Regulations constrain quoted companies from explicitly setting out their own forecasts, and the role of setting market expectations is performed by equity analysts. Companies are, however, judged by their ability to meet the consensus of analysts’ forecasts and must notify the market if they believe performance will diverge materially from consensus. In most cases, a company will provide analysts with a certain amount of guidance to avoid having to issue a profits warning or upgrade statement.

Citigate Dewe Rogerson is able to offer a wealth of experience and has managed this process for a number of clients over several years. We are aware of the pitfalls and legal arguments and fully understand the importance of stressing a company’s impartiality. Our dedicated team of investor relations consultants have an unparalleled breadth of financial markets expertise and an in-depth understanding of how companies communicate with their stakeholders. Moreover, we are independent and motivated by nothing more than our client’s best interests. Our independence also means that companies can maintain a safe distance from the sell side during the critical close period.

As a pioneer in this field, Citigate Dewe Rogerson has contributed to debates on the importance of understanding and communicating the market’s expectations. Our annual survey of investor relations professionals tracks developments and gauges opinion on issues around guidance. This year it revealed that the fastest growing medium for communicating guidance was the company’s website, which rose from 15% of respondents to 25%. The most popular medium for communicating guidance remains verbal communication, at 38% of respondents, but down from 42% in 2009. Our contribution to understanding this subject is valued by both the profession and the press. 

In 2009, when a number of high profile companies withdrew guidance, the findings from our survey featured in an article in the Financial Times. More recently IR Magazine wrote up our latest findings on guidance and sharing of consensus, and reported our recommendations. Our series of briefings on behavioural finance and communicating with investors considers the subject from a different perspective and is typical of our efforts to explore this important area from all angles.