Capital Markets & Investor Relations

IR Monitor – 23rd November 2020

Investor Relations News

This week we begin by looking at the research and advice presented during a recent CGLytics webinar on board expertise and skills gaps. We then examine the withdrawal of earnings guidance by S&P 500 companies during the Coronavirus pandemic and its gradual re-emergence as we move towards the end of this year. Following this, we look to understand the stir caused by Tesla’s upcoming admission to the S&P 500 index on December 21. Next, we explore the decline in the number of companies listed on the London Stock Exchange over recent years, and then analyse Deutsche Börse’s strategic move to become a front runner in ESG data with the acquisition of Institutional Shareholder Services. Finally, we cover the failure of the European regulator’s ban on bank dividends.

This week’s news

Understanding board expertise & how to fill the gaps 

Last week’s CGLytics webinar on board expertise explored the need to re-assess the fundamental make-up of boards. The research undertaken by FTI Consulting and CGLytics has determined that while technological and cyber risk to business was sighted as the biggest concern for the 250 investors interviewed, it remains an area of expertise largely missing from around the board table. In fact, following analysis of 367 companies it was revealed that only 8.5% of the directors at board level retained appropriate technological knowledge. The webinar panellists suggested companies should examine internally the make-up and skill set of those on the board through a candid and realistic skills matrix that can then be used to helpfully identify specialism gaps when it comes to board refreshment or succession.

Guidance: Restating, restarting and introducing some colour

By mid-May 2020, as the Covid-19 pandemic continued to sweep the globe, 70 percent of S&P 500 companies had revised or withdrawn their earnings guidance altogether, according to research cited by IR Magazine. The emergence of a new normal has led to some companies reinstating guidance. Irish housebuilder Glenveagh started this trend in September, when it published its interim results. Guidance isn’t necessarily what it used to be, though, with Glenveagh offering new metrics as well as traditional guidance and also moving to a shorter timeline.

Tesla/S&P 500: Musk-have purchase 

America’s largest automaker, Tesla, promises to cause quite the stir with its admission to the S&P 500 index in late December. According to the Financial Times, while this move has been expected for some time it is likely to spark unwanted disruption for low-profile index compilers as billions of dollars’ worth of stocks will have to be expelled to accommodate the entrance of the electric car marker. It appears instead it will be passive investors that welcome Tesla’s inclusion, the majority of whom would gladly be locked to a stock that over the course of this year has risen 374%. As the disagreements continue, index compilers are set to move into the limelight and shoulder far greater accountability.

London’s stock market is shrinking faster than European rivals

The number of companies listed on the London Stock Exchange fell by 21% in just eight years, according to a report for the European Commission cited by Private Equity News. The relatively high cost of raising public equity capital compared with private equity capital has been a main driver behind the shrinkage of London’s equity markets. Economics consultancy Oxera’s findings showed London is shrinking faster than any of its European rivals with the single but important exception of Frankfurt (which has shrunk faster still).

Deutsche Börse buys majority stake in ISS for ESG play

Deutsche Börse announced last week that it will acquire a majority share of approximately 80% in Institutional Shareholder Services, valuing ISS at USD 2,275 million for 100% of the business. With this transaction, DB strongly commits to one of the megatrends in the industry that will fundamentally change the investment space over the coming years. Reuters suggests that while the U.S. group’s business advising investors on how to vote at shareholder meetings is unexciting, its ability to score companies on their environmental, social and governance credentials offers growth potential. However, DB faces stiff competition from the likes of MSCI and Sustainalytics (who already compile indices which identify stocks with high ESG marks).

And finally… the cobra effect

The attempted population cull of Delhi’s cobras (when the occupying British government offered a bounty for every cobra carcass) is a historical case study in unintended consequences. So too, is the dividend ban by European banking regulators. According to the Financial Times these two examples of regulation failure both inadvertently worsened the problem those in charge had attempted to solve. Imposing a complete halt to dividend payments has seen the collective market capitalisation of Europe’s 66 biggest banks decline by approximately €250 billion (this figure dwarfing the €60 billion that was the amount of capital originally retained by terminating dividend payments). This modern twist on the cobra effect promises, unsurprisingly, to bear consequences for the foreseeable future as capital loss endures and the relationship between regulators, banks and investors is once again fractured.

Conferences

24 November  Deutche Bank – Business Services, Leisure and Transport Conference (virtual)

24 November Berenberg  – Real Estate Paris Seminar (virtual)

30 November  Citi – Basic Materials Conference (virtual)

December  Goldman Sachs  – European Industrials Conference (virtual)

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].

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