IR Monitor – 4th January 2023

This week’s news

Blue-chips buy back record £55bn 

The Times has reported on data highlighting record share buybacks from blue-chip companies in the UK last year. According to the research, there were £55bn worth of share buyback programmes in 2022, significantly above the previous record of £34bn in 2018, largely due to buybacks in the oil, gas, and banking sectors which together were responsible for £22bn. The article notes that share buybacks can appear to demonstrate management confidence in the share price. However, they can also be seen as unimaginative with some critics suggesting that the money might be better invested for growth back into the business; it is also suggested that buybacks can cause an undue inflation in the share price. The article highlights that buybacks have contributed to the perception of FTSE 100 businesses as “low-growth dinosaurs”.

Pay-outs forecast to hit record highs 

Investment Week has highlighted research predicting record dividend payouts in 2023 from FTSE 100 businesses with £85.8bn beating 2018’s record of £85.2bn, despite profits being expected to slow this year. This is largely due to the fact that large pay-outs continue to be expected from the O&G sector, with 54% of all payouts generated by just 10 companies. The 2022 final total is forecast to be £79.1bn, a small increase on the £78.5bn recorded in 2021. Persimmon and M&G offer the highest yields in the index, in theory, although the article also recommends wariness surrounding yields of over 10% as these are often, in practice, good indicators that the dividend is likely to be cut.

Senior management involvement in IR rises to pre-pandemic levels

IR Magazine has noted an increase in the amount of time that senior management are spending on investor relations, which has returned to pre-pandemic levels, reaching an average of 44 days in 2022. This follows a drop to around 39 days in 2020 and 2021. The article suggests that this increase is mainly due to a rise in the amount of time that CFOs, in particular, are spending on IR. CFOs are responsible for around half of the total time that senior management spends on investor relations according to the research, with CEOs spending around 15 days. The research also highlights some regional differences with European senior management being largely responsible for the increase in time spent on IR in the past year. Despite historically spending the least amount of time, European management dedicated an average of 43 days to Investor Relations in 2022, a new record. It is senior management in Asia who spend the most time, averaging 49 days in the year, but this is still significantly down on pre-pandemic levels of more than 60 days.

Forecasts are a waste of time

AB Magazine’s Peter Reilly has suggested that the difficulty in creating reliable, accurate forecasts means that they are often of far less value than many may realise. Anyone in the business of producing estimates is aware that the disparity between forecasts and reality has a habit of making you look myopic. Group-level guidance is built on weak foundations, consisting as it does of errors which are aggregated, and the outcome is often built upon wishful thinking rather than rational analysis. With leadership often under pressure to deliver results against optimistic forecasts, a rife breeding ground for potential accounting fraud is also cultivated. Reilly posits that research should be about assessing a wide range of factors, making subjective judgments and then offering an independent view. Issuing guidance is supposed to improve the dialogue between management and investors, whereas the opposite currently happens; the analysts are the essential middlemen in this process but when they slavishly follow the company line they are derelict in their duty here.

What did analysts around the world want to know about in 2022? 

Through analysing question and answer documents for clients delivering financial results in 2022, FTI’s own Dwight Burden has revealed what analysts were most eager to ask about in the year just past. The top thematic question in 2022 was about guidance, with many keen to discern a company’s ability to combat headwinds affecting growth; questions about margin, pricing, inflation, and material costs all skyrocketed in mentions compared to the year prior. Questions around supply chain issues and inventory were poignant in a year disrupted by the aftereffects of the worldwide pandemic, a semiconductor shortage, and geopolitical conflicts among many other distractions. Interestingly, questions on human rights increased by 61% on 2021, and questions on the metaverse increased by 157%, while COVID as a topic was a lot less central, with questions on this down 67%. Analysts were also curious about capital allocation with M&A and buybacks prominent in the minds of many. Looking ahead to H1 2023, Dwight picks out economic slowdown, consumer spending, confidence, interest rates, job cuts, and reshoring to be relevant themes likely of interest for analysts in the context of a global recession.

And finally… In 2023, boardrooms will rediscover the value of gray hair. 

2022 saw exuberance triumph over experience. It was the year that youngsters such as Mark Zuckerberg and SBF incinerated many billions of dollars in shareholder value. Breakingviews has predicted that in 2023 experience may become a valued commodity in boardrooms once again. Workforces across the world have advanced in age over the recent past and chief executives are becoming increasingly senior too. Many younger innovators have failed to impress in leadership positions, with behemoths like BoA, Disney and Starbucks all opting for more experienced leadership. As the share of European over-55s in continental workforces grows to over 20%, leading companies to raise their maximum retirement ages, experience should be at a premium as low inflation and bull markets end, and the article suggests that youthful entrepreneurs may find themselves temporarily side-lined as financial markets seek stability, confidence and expertise in the form of veterans.

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