IR Monitor – 13 September 2023

In this week’s newsletter:

• How to approach your first 100 days in a new Investor Relations role. Your initial weeks and months are about setting yourself up to succeed, says IR Magazine
• What the Instacart Initial Public Offering means for the wider market: its stock market debut is expected to value the US grocery delivery company at as little as a quarter of the 2021 price
• Impact of UK Corporate Governance Code proposals with the FRC: an IR Society webinar
• Activist pressure continues for The Restaurant Group as chair steps down
• Bloomberg considers: Is the UK stock market seeing the benefits of share buybacks?
• And finally … don’t let a robot do the call

This week’s news

How to approach your first 100 days in a new Investor Relations role

The first three months or so are pivotal in setting yourself up for future success, according to IROs and consultants speaking to IR Magazine. Tactically and strategically, taking advantage of the first 100 days at your new role within IR when there isn’t always a whirlwind of activity is crucial. Industry experts say that it is imperative that new joiners use that period to get to know your team, build rapport, familiarise yourself with management, financial planning and analysis, communications and legal, while embedding yourself in the culture of the company. It is advisable to use the first 100 days to plan for different scenarios, assess objectives, set goals, take inventory of the status quo, when new joiners can identify quick wins to showcase proactive attitudes. Only after these internal assessments should you look for bigger changes, such as rethinking earnings process or introducing new disclosures. And crucially, remember that actually you don’t get anywhere near 100 days before your first earnings announcement, which brings one expert to say “it spans from tactical to strategic. Focus on your stakeholder objectives and getting buy-in.”

What the Instacart Initial Public Offering means for the wider market

Instacart’s touted Initial Public Offering is believed by many capital markets participants as a barometer of Wall Street’s appetite for tech listings after a long dearth of listings. A piece by the Financial Times notes that the price range for the online grocery delivery company suggests a value between $7bn-$8bn, potentially as little as a quarter of the price tag it enjoyed two years ago. Due to Instacart’s volatile prospective valuation, many analysts predict that the outcome of its IPO will reflect the market to come; if it does poorly, it will shut the door for VC-backed companies; but if it receives a strong reception, many believe it could trigger a wave of IPOs at far lower equity valuations than during the pandemic, which would prove bruising for VC firms trying to cash out early investments when their portfolio companies list.

Impact of UK Corporate Governance Code proposals – an IR Society Webinar

Last week your FTI correspondent attended an IR webinar on the impact of proposed reforms of the UK Corporate Governance Code. A representative from the Financial Reporting Council (FRC) spoke about proposed changes to the reporting code set to be finalised today (13th September), outlining key alterations suggested to reporting companies. The FRC’s recommendations to organisations include warning against ‘over-boarding’, asking companies to clarify all significant appointments with a statement guarding against directors overexerting themselves and misusing time for directorial responsibilities, the encouragement of increased Diversity, Equity and Inclusion (DE&I) disclosures, especially around succession planning, mandating declaration of risks and internal controls that go beyond financial reporting, and requiring companies to report on the use of malus and clawbacks. Questions were fielded by members of IR teams in major companies, and in answering them the FRC maintained that while sustainability remains one of the most central considerations, the Council is wary that compliance reporting is increasingly becoming a ‘tick-box’ exercise; subsequently, the FRC will look to create sessions with companies to train organisations to adhere to the ‘comply-or-explain code’, and affording companies the flexibility to determine what they deem to be compulsory within their disclosures, challenging organisations to think critically about developing skills and attracting experts within the disclosures and reporting space.

Activist pressure continues

Wagamama, Frankie & Benny’s and Brunning & Price owner The Restaurant Group (TRG) has announced that its chair will not be seeking re-election at the group’s Annual General Meeting next year. Whilst TRG have cited “personal reasons” behind Ken Hanna’s decision to leave, the group has been facing continued activist pressure calling for his removal. According to correspondence seen by the Financial Times, activist funds holding the group’s stock were unsatisfied with Hanna’s corporate governance practices after he refused to consider appointing independent directors to the board. With 20% of TRG’s stock owned by activist investors, the group often faces high levels of scrutiny, for example most recently over executive pay. Elsewhere, while Irenic, which holds 4% of the stock, wants to see TRG privatised, Oasis, holding 18%, has called for the group to offload its Brunning & Price pub chain. 

Is the UK stock market seeing the benefits of share buybacks?

Last year, a record high percentage of UK companies bought back at least 1% of their own shares. What’s more, activity in Japan, Germany and France also increased. So, what’s behind this shift in attitude towards a historically controversial topic? Bloomberg suggests that whilst share buybacks can open-up management to criticism that they are attempting to artificially boost earnings per share, research shows that, more often than not, it comes down to the desire to close the gap between analyst and management forecasts. Whilst buybacks may offer greater flexibility than dividends, they contribute to the ongoing de-equitisation of the market. With net equity supply negative in the US, UK, Japan, France and Germany in July 2023, it begs the question: should buybacks be considered a valid way to return capital to shareholders? 

And finally… don’t let a robot do the call

How well do you think ChatGPT would fare if it replaced a CEO and CFO during the Q&A of an earnings call? The answer: better than you’d hope. Indeed, a recent study mentioned by Bloomberg, which fed different companies’ earnings releases, previous financial statements and earnings call introductions into a ChatGPT large language model showed that the AI software was able to answer analyst questions relatively similar to the way the executive team would. This did, however, depend on the nature of the results and thus how much colour management wanted to provide. The general rule is: if the earnings are bad, ChatGPT can match the executive team; if the earnings are good, it’s not able to provide the same level of detail required. Reassuringly, the study also showed that earnings calls which are not ran by ChatGPT were more informative, resulted in the stock moving more, and even lead to the analysts’ future forecasts being more accurate.

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