IR Monitor – 4th May 2021
Investor Relations News
We start in the UK, with the news that the country’s largest accounting firms have been asking the regulator for leniency when auditing high risk firms. We then move to the US, where upbeat growth prospects have pushed large companies to resume share buybacks and dividend increases to pre-pandemic rates. Back to the UK, we look at the debate that has been developing around Brexit and the future of the City. We then broaden our scope and ask the five essential questions for companies that want to go public. Then, some thoughts on best practices for digital IR. And finally, Tesla continues to confound people – this time with strange formatting abnormalities in their published earnings.
This week’s news
Accountants seek leniency from UK watchdog for high-risk audits
The Financial Times has reported that large accounting firms have asked the UK industry regulator, the Financial Reporting Council (FRC), to temporarily halt quality inspections for a year if they agree to audit high-risk companies listed in London. The concern stems from the difficulty of auditing a company for the first time, with mistakes potentially leading to serious reputational damage. The FRC is thought to have already rejected similar proposals in the past. An alternative solution would be to exclude the results of the FRC’s inspections for new or high-risk audits. In this way, the watchdog would be able to identify areas of improvement without putting auditors on the spot.
More companies buy back shares, pay dividends a year into pandemic
According to The Wall Street Journal last week, company spending on dividends and share buybacks is once again on the rise. In the US, large conglomerates such as Johnson Controls International and Kohl’s have announced increased dividends, in a sign of forward-looking optimism. Overall, the article notes that S&P 500 firms have increased their dividends by an average of 11% during the first quarter of this year. Furthermore, of the 70 S&P 500 companies that have provided information on buybacks so far, 50 have either bought back shares already or have announced the intention to do so. This trend raises questions about Washington’s likely reaction, as President Joe Biden frequently criticised buybacks during his campaign.
City fights for Brexit dividend as investors call for divergence
The Telegraph has revealed the content of a 96-page report sent by investor lobby group the Investment Association to the UK Treasury in regards to Brexit. The document calls Brexit “an important opportunity for the UK to define an innovative and responsive policy framework for investment funds,” later asking ministers to consider a fully exempt tax regime for UK funds to increase their appeal against European rivals. Another key area of improvement for the sector, of supreme interest to IR readers, would be a partial or total reworking of Mifid II, the 1.7m-provisions regulation behemoth that bankers say leaves large scope for simplification following the UK’s exit from the bloc.
Looking to IPO? Here are 5 questions to ask yourself first
Sifted has compiled a 5-step questionnaire for entrepreneurs looking to take their company public. First, are you prepared for scrutiny? In the words of venture capitalist Adam Niewinski, “when you’re a publicly listed company, there’s no space for a mistake.” Second, are you prepared for a cyber-attack? Going public means more attention, not always of the right kind. Third, is now the right time? This means the right time both for the market and your business. Then, how sustainable is your business? With increasing ESG scrutiny from institutional and retail investors, a bad track record can make or break a public offering. And finally, have you considered the SPAC route? While the journalist notes that SPACs have historically been financial underperformers, they are arguably the best options if you are looking for a speedy route to market.
Don’t let Reddit own your story: Best practices for digital IR
IR Magazine hosted a webinar in which Andrea James, SVP of corporate strategy and investor relations of Axon Enterprise, and Mike Coffey, VP of global partnerships and alliances at Q4 discussed the best practices for digital IR. The importance of these skills has heightened due to the expansion of commission free trading and the covid pandemic which led to the big influx of retail investors in the stock market over the past couple of years. By acting as a pack, retail investors have had as much of an impact on some companies’ stocks as a sell side analyst. IR professionals need to look at the risk/reward balance of engaging with investors on digital platforms, and have to increase their willingness to engage with the community on even the most difficult questions.
And finally… Tesla and the obscure earnings JPEG
Under the lights of Tesla’s Big Top, you’re never quite sure what sort of show you’re going to get. The Financial Times decided last week against analysing the “whole circus” of Tesla’s results, but instead analysing the odd formatting quirk in the shareholder deck itself. There, they discovered that a line detailing cost reductions and $101m of bitcoin sales was an image instead of text, meaning that none of the terms could be searched in the document. The FT concluded that it wasn’t a late edit to the PDF and instead posited a much more interesting, sinister theory: that Tesla’s investor relations department knew that journalists, investors and algos would be scanning the text for any mention of bitcoin sales, and wanted to try to hide the fact that these helped to boost the bottom line so much.
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