IR Monitor – 22nd February 2021
Investor Relations News
We begin by looking at how the increasing demand for “sustainable” investment is prompting managers to change strategy, or at least the branding, when it comes to European funds. We then turn to Institutional Investor magazine to find out which companies fixed-income investors favoured in 2020. Next, we revisit the future of the office, highlighting that long-term investors continue to acquire offices in major cities. Then, we look at reports that suggest corporate dealmakers are likely to have overpaid in 2020. In addition, we examine the recent global fund manager survey that found investor confidence is soaring with the focus now wholly shifted to capital expenditure. Finally, we note the extraordinarily high number of IPOs already in 2021 and the probability that many (if not most) will be unprofitable.
This week’s news
ESG demand prompts European funds to change tack
Growing clamour for “sustainable” investment led managers to change the strategy or investment profile of 253 European funds last year, according to the Financial Times. The data, compiled by Morningstar, found that the change in approach helped to push regional assets invested in funds with an environmental, social or governance tilt to a record €1.1tn by the end of December. Doubts remain, however, about the true legitimacy of that number. 87% of the 253 repurposed funds, which claim to have added ESG criteria to their investment objectives, also rebranded themselves to include terms such as “sustainable”, “ESG”, “green”, or “socially responsible investment”. Critics have pointed out that there is potential for misunderstanding here in the absence of a global consensus on what constitutes an ESG fund.
Fixed-income investors’ favourite companies during the pandemic
As corporate bond defaults surged in hard-hit sectors (like oil and gas, retail and restaurants), corporate fixed-income investors looked to IR teams to explain how their companies would weather the crisis and pay off loans. Thanks to Institutional Investor’s 2020 ranking of Global Fixed-Income Investor Relations, it is now clear which companies were favoured by these investors. The data demonstrates that top-ranking firms included JPMorgan Chase & Co., which ranked first among banks, and T-Mobile USA, which was No. 1 in the technology, media, and telecommunications sector. Morgan Stanley placed first in the non-bank financial sector, while Chinese real estate developer Zhenro Properties Group led the real estate and construction category.
Long-term investors think the future of the office remains viable
The days of companies visiting investors in their offices will return – so say the investors themselves. In an interview with The Irish Times, Iput CEO Neill Gaffney has said that the move by a number of long-term investors to acquire offices in Dublin and other international cities “answers the question” about the future of the office as a workplace. Mr Gaffney dismissed speculation about the survival of offices post-pandemic, describing such thinking as short-termist. Instead, he said that long-term investors, who think in “10-year and 20-year cycles,” have demonstrated their continuing confidence in the office. Indeed, for an example, French real estate investor Amundi and German fund Deka Immobilien have recently acquired Fitzwilliam 28 and Baggot Plaza in Dublin city centre.
Corporate dealmakers at risk of suffering a bout of buyer’s remorse
Bain & Company’s annual M&A report has found that, even during a global health and economic emergency, the median enterprise value to EBITDA multiple across all M&A deals in 2020 was 14, compared with 13 for the previous year. According to Reuters Breakingviews, this data indicates that, despite what many predicted, completing a deal during a financial crisis does not guarantee a more accurate valuation than deals done at the top of the cycle when spirits and share prices are soaring. The prevalence of technology-related deals, moreover, suggests this is not just a function of lower EBITDA in lockdown-hit sectors. In short, acquirers in 2020 risk a serious case of buyer’s remorse.
Reinvigorated bullish investors push for a focus on capex as economic confidence climbs
According to the recent global fund manager survey from Bank of America Merrill Lynch, investors are increasingly confident about the potential for a strong economic recovery. As a result, they are now encouraging companies to dedicate cash flow to capital expenditure as opposed to improving the balance sheet. IR Magazine reported that investor bullishness has notably increased on the back of improving economic data, as global equity allocations have reached their highest point for a decade and the rapid speed of vaccination programmes in some countries has reassured many. This drastic change in outlook marks the first time since the onset of the coronavirus pandemic that balance sheet improvements have not been the priority for investors.
And finally … IPOs – initially profitless opportunities
The Financial Times has reported on recent liveliness in the general market, claiming that equity exuberance is evident far and wide. Indeed, recent figures have set the number of IPOs that have already taken place in 2021 at an almost unbelievable 58% of last year’s figures. This means that the run-rate of IPOs could potentially be on course to surpass even the 1996 peak. More alarmingly, almost 90% of IPOs last year were loss-making. The FT suggests it is more than likely that a substantial number of this year’s IPOs will also end up being unprofitable.
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