IR Monitor – 22nd March 2023

This week’s news

Is the global investment boom turning to bust? 

Wherever you look now, companies seem to be scaling back their ambitions. Analysing capital spending data across 33 OECD countries, The Economist has found that capex fell by 1% in the fourth quarter of last year compared to the previous quarter, attributing this change to several factors.  Even compared to a few months ago, companies have less cash to spend and with supply-chain issues posing less of a threat than in 2021, additional investment in extra capacity or storing inventory is no longer seen as critical. Moreover, the capex boom was fuelled by an assumption that pandemic lifestyles would last forever, prompting economic reallocation and requiring an increasing number of new technologies. But, as the post-pandemic economy now looks remarkably like the pre-pandemic one, spending on services is catching up with spending on goods, and companies that led the capex charge are starting to retreat.

Schroders nails down its engagement blueprint for 2023

Last week, Schroders updated its Engagement Blueprint for 2023, committing to a greater focus on the just transition, expanding natural capital and biodiversity expectations, and outlining its approach to impact-driven engagements. The asset management company noted its engagement and voting activity will reflect the current inflationary and uncertain geopolitical environment, placing a greater emphasis on how companies approach the cost-of-living crisis and expecting businesses to communicate if and how their operations have been affected by the conflict in Ukraine. Given the current  environment, Schroders further highlighted that it anticipates companies to make reasoned judgments around pay and will increasingly be voting against the re-election of target directors at highly exposed companies where climate progress appears slow.

Shhh…companies scaling back ESG reporting to avoid scrutiny 

For most companies, the key question as they seek to tell their sustainability stories is how much they should disclose. But, as panelists at the ESG Integration Forum discussed last week, businesses starting to tackle issues like climate risk or board diversity, are wondering whether it’s risky to talk about their sustainability initiatives at all given the growing focus on greenwashing and the anti-ESG backlash, particularly in the US market. As a result, companies are scaling back their ESG reporting to avoid greater scrutiny. For example, a survey of 1,200 private companies last year by South Pole, found that a quarter of respondents had no intention of discussing progress or goals on climate action beyond the bare minimum, with smaller companies being far more likely to limit their disclosure.

Many investors interested in UK IPOs

Investors in the UK, notoriously hard to win over in recent months, are warming to the idea of putting money in fresh listings once again. Investment bank Numis canvassed 200 institutional investors that allocate to UK equities and found more than 84% willing to meet with IPO prospects, while 78% were ready to back one if conditions are right. “Dialogue is picking up, and we’ll likely see activity return in the second half of the year,” says Numis Co-CEO Ross Mitchinson. “But it won’t be before 2024 that we see a full return in IPO activity.” Bloomberg warns that while a return to equilibrium will bring much-needed relief to the market, issuers still have many barriers to overcome. Most notably, the increasingly volatile markets, caused by cracks in the banking system following the seizure of Silicon Valley Bank and the collapse of Credit Suisse.

Why investors are leaving London and taking flight to Wall Street

In an opinion piece for the FT, Simon Edelsten of Artemis compares the question of which stock exchange a company is listed on to the search for rare birds; for most fund managers, like birdwatchers, it doesn’t really matter where you have to look. Valuation is often cited as a reason for companies to choose Wall Street over the City of London. For instance, US accounting software Intuit is on double the earnings multiple compared to UK Counterpart Sage. However, this is partly a function of a different accounting regime in the US which tends to depress earnings; on multiples of cash flow the valuation gap between UK and US companies looks far more modest. According to Edelsten, it is more important where a company does business than where a company is listed. He remains concerned about the overall decline in listed UK companies but not about the thin drift of companies to the US (which may prove to be cyclical).

And finally … “absolutely not”: the most expensive two words in history?

Saudi National Bank confirmed on Monday that it had been hit with a loss of around 80% on its investment in Credit Suisse. The sudden and sharp downturn that began last week, and led to the bank’s emergency sale, is seen by many to be partially the fault of the Saudi National Bank itself. Back in December, Chairman Al Khudairy could hardly have been more bullish, arguing in a Financial Times interview that the purchase of 9.9% of Credit Suisse amounted to just 2.2% of SNB’s investment portfolio and was ‘barely worth a press release’. When asked by a Bloomberg reporter if SNB would increase its stake in the troubled Swiss lender, the Chairman’s response was altogether more brief: “absolutely not”.  In investor relations, as elsewhere, discretion is very often the better part of valour.

Contact Us

To be added to the distribution list for the IR Monitor, or for further information on the dedicated investor relations team at FTI, please contact [email protected].