IR Monitor – 26th October 2022

This week’s news

FTI sponsored and attended the MEIRA conference in Riyadh

This week FTI attended and sponsored the annual conference of the Middle East Investor Relations Association (MEIRA), which took place in Riyadh, Saudi Arabia. The event included many interesting keynote speeches and panel conversations, alongside great networking opportunities. FTI’s Matthew O’Keeffe moderated a panel discussion on current global market uncertainty and how companies can mitigate its impact, best leverage their business models and optimise their capital structure. Against a challenging global backdrop, a number of robust trends stand out: most notably, the rise of the Middle East as an ever-growing investment destination for international capital and the continued professionalisation of the investor relations sector in the region. As regulatory frameworks become increasingly robust, we noticed very clearly a widely shared ambition to adhere to best practice IR in the region.

How to adapt your engagement strategy to market turmoil

In the current market upheaval, maintaining engagement with long-term investors is the most important tool in the IR toolbox, and this can easily be monitored through technology according to a panel of industry experts interviewed by IR Magazine. IROs were advised in a webinar to evolve their communication tactics by exploiting new technologies, whether through AI or virtual investor days, video earnings calls or virtual roadshows. It is also paramount for senior management teams to know where they sit in the business cycle, to ensure their targeting efforts are fine-tuned and aimed at the right investors. Finally, to determine the success of an engagement strategy, management teams are encouraged to benchmark their performance against peers. Looking at the competitive landscape offers different and new perspectives, allowing a management team to adjust their strategy and optimise their overall positioning and investor engagement.

76% of US companies listed in 2019-21 now trade below offering price

Stars rise and fall, but none have fallen so far as the companies that went public between 2019 and 2021. An analysis reported by the Financial Times has revealed that a staggering 76% of US companies that raised at least USD100m in the period are now trading below their offering price. Within the sample of 400 listings, the group’s median return since IPO stood at a negative 44% (and a very large number of companies are even trading more than 50% below listing price). As fears of a recession are higher than ever and the Fed remains committed to raising interest rates, share prices have plummeted and private equity groups are circling these fallen stars as potential buyout targets. Directors and shareholders will be facing tough choices over whether to accept potential offers from private equity firms or opt for deep-pocketed strategic rivals looking for bargains. As one prominent private equity investor commented, “it’s really hard to be a public company these days… Good news falls by the wayside and bad news is punished. It is the worst of both worlds.”

How do PMs view engagement? 

After questioning portfolio managers on their engagement with companies, Morningstar noted that engagement on ESG issues can look very different from one fund to another. The article highlights various different types of engagement, from launching collective actions against governments, notably in emerging markets, to more localised actions. Often, years of dialogue can result in the changes being pushed for by the investors. However, although some companies demonstrate innovative thinking to support initiatives promoted by investors, the article also explores worst-case scenarios where a company cannot meet all the fund’s expectations, resulting in a divestment. Either way, the main finding remains that, for a majority of participants, engagement implies a close relationship and a deep understanding of investee companies and therefore represents a significant investment for fund managers.

Activists are back & want change

Activist investment is back after a relatively quiet two-year period, according to the New York Times’ DealBook. Following a quiet period mainly due to challenges associated with the COVID-19 pandemic (which meant some changes were not possible and the optics of others were not positive) the article suggests that activist investors are now identifying undervalued companies that they can shake in volatile markets. This is in the context of a change in voting rules in the US, with companies now having to adopt universal proxy cards. The cards are said to benefit activist investors as it makes it easier to claim board representation. Meanwhile, some also argue that the new rules now make it cheaper and easier to behave like an activist… for everyone, and not just the usual suspects.

And finally … how corporate managers dilute the impact of negative events

According to a new study released by a group of university researchers, companies are using ways of side-tracking shareholders when they have bad news to share. After analysing close to 50,000 8-K filings and their related press releases, the study found that in 33% of cases, the accompanying press release actually related to a different event than the underlying 8-K. The researchers noted that this had the potential to distract shareholders from bad news as “there are only so many disclosures an investor can process at the same time”. And whilst 8-K filings are expected to notify shareholders of major events with price sensitive potential, the study stresses that accompanying press releases are often used to impede the pricing of negative information and mitigate share price volatility.

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