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MiFID II causes decline in analyst coverage of UK stocks

SearchInvestors are getting less analyst coverage of UK-listed companies as a result of the capital markets rules changes, known as MiFID II.

Research by Citigate Dewe Rogerson shows that UK-listed companies “have been hit by an accelerated decline in both the quantity and quality” of securities research from analysts working at brokerages.

MiFID II, introduced in 2018 across the EU, unbundled research costs from execution costs meaning analysts are no longer paid for out of trading commissions. The impact on research has been felt across small, medium and large listed companies.

Overall, 52% of investor relations professionals at UK companies reported a year-on-year decline in the number of analysts covering them and 38% reported a fall in the quality of research.

For European companies excluding the UK, the figures were 39% and 20%, respectively.

Citigate Dewe Rogerson said the issue is particularly acute for the smaller and medium-sized listed companies, which already faced challenges in gaining institutional investor attention.

Sandra Novakov, head of investor relations at Citigate Dewe Rogerson, says: “Analysts scrutinise companies, and this helpfully draws attention to them. The more pronounced decline in sell-side research in the UK means that high-quality, medium-sized and smaller companies face a very real risk that they drop off the radar of institutional investors. This can lead to a reduction in liquidity that is hard to recover from.”

However, companies are taking proactive steps to address this such as actively articulating their investment case and increasing roadshow frequency and effectiveness, added Novakov.

The research is based on responses from 479 investor relations officers at leading companies across the world, including 242 from Europe.

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