Investor days & conferences – the shadow reporting season

As investment time horizons continue to shrink in Australia, May has become a proxy quarterly reporting season in a market that still (thankfully in our view) only has bi-annual reporting for listed companies. Conferences, investor strategy days and trading updates all talking to the March quarter results, FY2025 guidance and the impact of tariffs for the brave. While it is a good opportunity to check in on how companies are performing, we must remember our time horizon is 3-5 years or longer, and hence the news in one quarter being better or worse may be interesting but in most cases is not hugely valuable or relevant to our investment thesis.

In our view it is always valuable to learn more about how industries and the businesses within them work, change, adapt, win or lose. And investor days do provide that.

Having attended a few of these in our time, including several in the past couple of months, we have put together a quick checklist to help investors understand what we believe a good investor day looks like.

1. Do management have a strategy in the context of their industry (structure and trends) that makes sense? This does require the investor to have their own view of the industry against which to contrast both how management view it, and the likely success of the strategy they are proposing.
2. Are management clear on operational goals over the strategy time horizon (most often three years), how they will achieve them and who is specifically responsible for this? This has to be more than a wish list of what they would like to happen. They need to be clear what, who and over what time frame.
3. Are the operational goals linked to financial outcomes in the business – sales growth, gross margins, operating cost efficiency, capex, working capital, debt constraints, new investments (P&L or balance sheet) to name a few? Are these financial outcomes clearly communicated to investors against which management are happy to be measured and rewarded? This can often get sidestepped for various reasons (competitive sensitivity is normally the excuse given), but the best management teams show courage in putting in writing exactly what they believe their strategy will deliver financially. Again, investors should be assessing this in the context of their own view on the industry, the specific company and its competitive advantages to determine how realistic any numbers provided may be, and where the greatest risk is to achievement.
4. Do we believe this management team and the executives nominated to deliver the operational and financial goals can execute and deliver? The hard work begins once the strategy day ends, and execution in competitive markets can be a lot harder than building a convincing slide deck.

Some other context worth considering.

Communication strategy. Companies often communicate with many stakeholder

Management Consultants are the original ChatGPT. Students who use ChatGPT to complete their schoolwork and expect to pass the final exam are like management teams and boards who outsource their commercial insight to consultants and hope to win in the real world. It is obvious those management teams whose insight comes from their own experience, successes, failures and experiments and those renting it from a consultant to fill out slides in a deck.

Alignment and incentives. Incentives drive outcomes. We all know this, and Charlie Munger made it famous. The corollary should be “do not underestimate the number of people who seek excessive remuneration with a complete absence of measurement”. Marty Whitman from Third Avenue Value Funds wrote about this decades ago (Value Investing: A Balanced Approach, 1999), calling executive compensation the last great arbitrage. Arbitrage drives outcomes. The number of $20 million houses owned by executives of companies who failed to perform for their shareholders suggests this arbitrage has yet to be competed away and shows few signs of doing so.

In our small company universe, investor strategy days were held for Myer, Light & Wonder, Alliance Aviation Services, Aussie Broadband Ltd, HMC Capital Ltd, Healius Ltd and Webjet Group Ltd. Without going into detail, there were good and bad here (not necessarily reflected in immediate share price moves). In some cases, the insights we gained are more valuable to us about how these companies compare to others in the same sector we have interest in, as much as the company who was presenting. Given these presentations are very long, it is also instructive what is not said – what perhaps are either blind spots for management or specific competitive advantages their peers possess and pursue which these companies do not. We have made a few changes to the portfolio based on what we learned in May.