Liquidity of the share is a common concern among all small caps like us, who decide to go public. If there’s no trading on the stock, you risk losing many of the benefits of being a public company. We had the same problem ourselves after our IPO.
We floated a relatively small amount of shares in the IPO (€5.7 million), around 70% of our cap table was under lock-ups for the first year, and the cap table was very concentrated with employee owners. To make things worse, our share price inflated massively (100%) the moment we rang the bell, followed by a painfully long period of a slowly declining share price, as the gravitational pull of efficient markets kicked in. Additionally, slowing growth in our core business within a deteriorating market did not make telling the investor story any easier. The whole setup was terrible from an IR perspective. Our Board was pushing me to fix the problem:
“This does not look good, Mikael.”
Bell ringing ceremony: me and co-founder Juha staring at the 50 EUR opening price. The IPO price was 25 EUR. Now we trade at 20 EUR, and considering dividends the IPO subscribers are on a small loss.
Many of our clients ask for quick fixes when facing this type of situation. We are eager to find them ourselves as well. This is the most common quick-fix advice:
On several occasions, I was encouraged—or even pushed—to find institutional owners for Inderes, preferably international ones. This is very typical advice and what many small caps also desire. New big owners come in, and boom, it’s fixed! Unfortunately it’s not that simple nor easy. Finding a strong, long-term institutional owner for Inderes could, of course, be a fantastic thing, but how does that improve our liquidity?
For the sake of learning, I followed the advice and went on a small roadshow to discuss with several institutional investors. It did not go well. There was a major obstacle to begin with: they can’t invest since our share doesn’t have enough liquidity! Back to square one. The reality is that this will be a marathon that takes time and will require multiple actions on several fronts. Unless our company becomes the next meme stock target on Wall Street Bets. But let’s take that scenario off the table. Good business performance always helps, but that’s not in the hands of an IR. What else?
After failing to attract institutions, I went back to the Board: I need time. Time will fix this, and this was actually easy to see. At the time of the IPO, we had around 70% of the company owned by about 70 employees. All these shares were under lock-ups, with the first third being released after 12 months on the list. Take a sample of 70 people, and two things are statistically highly likely. First, some people will fulfil their life dreams (build a house, pay off debts, take a sabbatical, buy a vintage car), and they will sell shares to enable those dreams. This is a great benefit of being public, though it does not benefit the company directly. Being on the list is the best tool in the world to enable the natural evolution of your ownership structure. Secondly, some people will leave the company, move on to the next adventure in their lives, and sell their shares. Both scenarios are just simple facts of life.
1973 Porsche 911 Carrera RS, a vintage car I bought after our IPO
While there was too limited a supply of Inderes shares on the market right after the IPO, it was evident to me that over time this would be fixed, thanks to a diversified owner base already at the time of the IPO. Supply: check. Next, we had to look at the demand side of the equation. You can never expect that you just deliver, and then investors find you. You need to be found.
Our investors were furious since it took over six months for Inderes to get analyst coverage after the IPO. As usual, the banks are unlikely to start covering a small cap (below €150 million market cap) like us since there’s no business in it for them. And if they were to begin coverage, this research would be available for institutions only. However, nowadays access to commissioned research is easy, and there are multiple good providers. Our research from SEB is very actively followed among our owners, with thousands of readers on the report. This ensures that the markets always have relevant and forward-looking third-party information available, and when investors have more information, they are also more comfortable buying or selling. In my previous blog post, I discussed the benefits of SEB’s coverage in more detail. I believe this has had a significant positive impact on our liquidity.
SEB research updates and news comments are active generate a lot of engagement on Inderes site
Inderes is probably one of the most retail investor-focused companies in the Nordics. Our IPO was exclusively available to retail investors who have an account at Inderes. That’s right, there was no institutional offering, which meant we probably got more owners (10,000) in the IPO than we would have otherwise gotten.
Since the IPO, we are naturally not excluding institutions in any way, but our investor relations have continued to be extremely retail-focused. This means webcasting all investor events and distributing them actively on social media and other investor channels. Participating in a lot of retail-focused events. Being active on social media and using our Forum to communicate openly with our investors. We are a small company, and like in many cases, it’s the CEO who is mainly responsible for IR. Thus, our scarce resources need to be focused, and IR needs to be very targeted. Given the goal of improving liquidity in the long term, retail has been an obvious choice.
The thread for Inderes’ stock has over half a million views, 1800 messages and reading it takes the length of an audio book. It’s a massive investor media for our company stock only.
In Q4, Inderes was the 8th most liquid stock on Nasdaq First North Helsinki out of the analysed 48 stocks, based on data from Bloomberg. A total of 7.3% of our entire cap table changed hands during the quarter (trading volume divided by the number of shares). This is not excellent but still a decent number for a newly listed company that did a very small offering in the IPO in October 2021, at the peak of the market. Looking at full year data, we did not rank as high, and Q4 was obviously strongest quarter in history for us in terms of liquidity.
As for the main list companies, the quarterly average was 6% in 2024, compared to only 4% on the First North marketplace. Liquidity has been a big concern in our markets since the market peaked in 2021, and 2024 was a tough year in terms of attracting investor interest for Nordic companies. The environment is what it is, but we as listed companies ourselves can also do a lot to improve the liquidity in the markets.
To access the full liquidity data in Excel, please click here.