Research funded for small companies

THE stock exchange operator will start paying for investor research on small and mid-cap companies - stocks often ignored by mainstream analysts - to boost trading activity for these customers.

By InvestSMART · 24 Jul 2012

By InvestSMART ·
24 Jul 2012

Comments

THE stock exchange operator will start paying for investor research on small and mid-cap companies stocks often ignored by mainstream analysts to boost trading activity for these customers.

The Australian Securities Exchange will pay stockbrokers, investment banks and research houses to publish information about companies with a market capitalisation under $1 billion, which make up 92 per cent of the ASX.

The $1 million year-long trial will create research on chronic underperformers Village Roadshow, Brisconnections Unit Trusts and the Gerry Harvey and Lachlan Murdoch-backed toy company Funtastic.

The ASX says the scheme will give investors a better understanding of listed companies that may not have been covered before, smoothing the way for them to raise money over time. But some industry players note that companies are often not covered for a reason.

Under the scheme, research house Morningstar will compile a "company snapshot report" on almost 1200 companies with a market capitalisation below $50 million. This snapshot, available through the ASX website, will include a share price chart, the company's substantial shareholders and management.

Companies to be covered by Morningstar include Brisbane Broncos, egg company Farm Pride Foods, blinds business Kresta Holdings and women's fashion retailer Noni B.

Meanwhile, brokers and investment banks such as RBS Morgans, UBS and Deutsche Bank will be paid to include companies worth between $50 million and $1 billion in their research for clients. Companies include Freedom Foods Group, Funtastic, AVJennings and PrimeAg.

Andrew Kemp, portfolio manager of the DIGGA Australian Mining Fund, said the 12-month trial "seems like a co-ordinated effort to promote the smaller end of the market to increase participation levels".

David Horsfield, chief executive of Stockbrokers Association of Australia, said the scheme was a positive development.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What is the ASX-funded small and mid-cap research trial?

The Australian Securities Exchange (ASX) is running a $1 million, year-long trial to pay stockbrokers, investment banks and research houses to publish investor research on small and mid-cap companies with market capitalisations under $1 billion. The aim is to boost trading activity and coverage for stocks that are often ignored by mainstream analysts.

Which companies will be covered by the ASX research funding?

The scheme targets companies across the small and mid-cap spectrum. Morningstar will produce snapshot reports on almost 1,200 companies with market caps below $50 million (examples include Brisbane Broncos, Farm Pride Foods, Kresta Holdings and Noni B). Brokers and banks will cover companies worth between $50 million and $1 billion, including names like Freedom Foods Group, Funtastic, AVJennings and PrimeAg. The program will also create research on some chronic underperformers such as Village Roadshow and Brisconnections Unit Trusts.

Who will produce the ASX-funded research and where will it be published?

Research houses and brokers will be paid to publish the coverage. Morningstar will compile the company 'snapshot reports' and make them available through the ASX website, while brokers and investment banks such as RBS Morgans, UBS and Deutsche Bank will include eligible companies in their client research.

How can everyday investors access the ASX-funded company research?

Morningstar’s company snapshot reports will be available via the ASX website. Additional research on companies valued between $50 million and $1 billion will be published through participating brokers and investment banks as part of their client research.

Why is the ASX funding research on small and mid-cap companies?

The ASX says the scheme will give investors a better understanding of listed companies that may not have been covered before, smoothing the way for those companies to raise money over time. Commentators in the article view the 12-month trial as a coordinated effort to promote the smaller end of the market and increase investor participation.

Will the ASX-funded research cover risky or underperforming stocks?

Yes — the trial will include coverage of some chronic underperformers such as Village Roadshow, Brisconnections Unit Trusts and Funtastic. The article also notes some industry voices caution that companies are sometimes not covered for a reason, so coverage does not remove risk.

What information is included in the Morningstar company snapshot reports?

According to the article, Morningstar’s snapshot reports will include a share price chart, details of the company’s substantial shareholders and information on management for almost 1,200 companies with market capitalisations below $50 million.

Are there any limitations or caveats investors should know about this ASX research trial?

The program is a limited $1 million, 12-month trial and focuses on companies under $1 billion. While the ASX and some industry groups see it as positive, the article highlights that some companies lack coverage for valid reasons, so investors should treat the new research as an additional resource rather than a guarantee of company quality.