New York – A study conducted by Imprima, a provider of financial communications services based in the UK, indicates that stakeholders believe that the small cap investment market in London requires a “radical restructure to encourage recovery.”
Imprima implemented a survey among small cap companies, advisers and investors. The results revealed two main drawbacks in the space: an ongoing slower-than-expected recovery in the small cap market and limited investor appetite for small cap companies. Furthermore, two of the main barriers to recovery in the space are the shortage of shares in sufficient quantities and the lack of knowledge about specific companies.
A news report on Imprima’s study highlights that other barriers to recovery in the small cap market include concentrated shareholding structures, lack of knowledge about the sector and shortage of independent research. According to the report, “An overwhelming majority (93%) of respondents said they found independent research on small caps useful.”
Imprima’s report concludes that independent research is an effective way for small cap companies to increase their visibility and convey their value proposition. Integrity Research’s own observations in the small cap space are aligned with this conclusion.
In the 4th quarter of 2009 Integrity conducted a survey among 141 buy-side users of small cap research in the US to learn about their preferences and usage trends. The majority of respondents (68%) found small cap research to be either “Very Important” or “Somewhat Important” in their investment process. While only 21% of respondents found small cap research to be “Critical” to their process, 0% found “No Value” in such type of research.
Respondents indicated that the most important factors when evaluating small cap research offerings are: quality of analysts, depth of research reports, and unique company/industry insights. Interestingly, our study revealed that factors typically ranked highly buy large-cap investors, such as access to company management, conferences, and financial models, are not significant regarding small cap research.
Research shops could take these insights into consideration and tap into the opportunity of filling the void in the UK small cap research space.