Capital Markets & Investor Relations

IR Monitor – 9th August 2021

Investor Relations News

This week, we look at how the ghost of inflation has been making more and more appearances in American earnings calls. We then move on to examine whether inflation scares are actually a drag on the bottom line or, as some have suggested, only on the mood of executives. In third place, we look at the challenges posed by hybrid investor relations events, followed by a word on the rise of dividends across UK-listed companies and whether it is sustainable in the long term. Next, we discuss the futility of noisily setting out positions on things which are outside the scope of normal business and we discuss the far greater importance of employee wellbeing in the era of ESG investing. And finally, we look at another form of inflation – this time in BUY ratings by financial analysts, which appear to be at an all-time high.

This week’s news

Here’s how often ‘inflation’ is being mentioned in corporate earnings calls

Research by Bank of America has shown that mentions of inflation have jumped across S&P 500 earning calls, with a staggering 1,100% increase year on year. MarketWatch, reporting on the news, observed that while companies are still reporting solid margins, talks have begun to shift towards “bad” inflation, with mentions of higher labour and supply chain costs. Surveyed companies are hinting that inflationary pressure might outpace pricing power in the near term. Nonetheless, earnings per share among S&P500 companies have beaten analysts’ expectations at a solid average rate of 14% so far, with communication services and consumer discretionary firms leading the pack.

Here’s what CEOs talk about when they talk about inflation

The New York Times has been collecting comments from US executives on inflation, their perception of it and the impact on the bottom line of their businesses. Some strike a gloomy tone, with UPS CEO Carol Tomé noting that consumer spending might slow due to increasing prices, as firms pass down higher costs to protect their profit margins. Others are more optimistic, with Lowe’s CFO David Denton saying that his company expects commodity prices to lose steam in the second half of the year. That said, The New York Times observes that inflation has so far been a drag on the mood of executives, rather than on financial results which are at an all-time high. As per the Bank of America research mentioned above, talk of inflation is arguably growing faster than inflation itself.

The challenge with the hybrid model will be roadshows

Alex Aylen, head of equities for Canaccord Genuity’s UK and Europe capital markets business, has discussed the difficulties that new hybrid models will bring to the world of investor relations and roadshows. In an interview with IR Magazine, he argues that the efficiency of virtual meetings has altered expectations by giving professionals the opportunity to cram as many calls in a day as possible. In a hybrid model, he adds, virtual attendants might find themselves waiting because of delays at the in-person end (which are more likely due to logistical disruptions, equipment failure, travel issues and more). That said, Aylen observes that Canaccord is already seeing an uptake in demand for in-person meetings. While hybrid models are likely to stay for the sake of convenience, he argues that we should not underestimate the appeal for investors to meet face to face with corporate executives.

The summer of the UK ‘super divi’ 

The UK was mired in uncertainty last year amidst Covid lockdowns, market outflows, deflation fears and an unprecedented dividend cull. Whilst uncertainty still prevails in 2021, the macroeconomic backdrop is now the opposite, with economies reopening, market inflows, inflation fears, and a summer of ‘super dividends’. The Financial Times has noted that the next few weeks will be particularly interesting (and important) for income investors, with a large percentage of the FTSE 100 reporting results. Banks and mining companies both look to be in a strong position to increase their dividends, with some having already reported large dividend increases. This raises the bigger question of how sustainable the hefty rises in dividend payments are beyond the summer; it may be more pragmatic for income investors to see this year as a one-off, and to focus on dividend prospects for next year.

If it’s social justice companies want, they should start with their workers

The past year has seen numerous companies setting out their stance on various social issues via social media. James Kirkup of the Social Market Foundation has argued in The Times that if companies really want to do something socially beneficial, they should talk less and focus their action closer to home: on their staff, suppliers and neighbours. Recent research has found that the public do want companies to be good citizens, with most citing support and development of their staff or investment in their communities as the best way of doing so. Kirkup argues that companies must begin to address in-work poverty, not solely through paying higher wages, but also through providing more training. In an age of ESG investment, supporting the economic wellbeing of employees looks set to become part of what it means to be a ‘good’ business.

And finally … Analyst ‘buy’ ratings reach 18-year high

The percentage of ‘buy’ ratings from analysts has reached its highest point in 18 years following a better-than-expected US earnings seasons. The  Financial Times has noted that this flurry of upbeat recommendations also coincides with both the S&P 500 index and the Nasdaq Composite reaching record levels in the week of 26 July. However, the slow pace of economic growth in the US could spark caution amongst analysts, with some already beginning to express concern about the longevity of elevated earnings (particularly against a backdrop of rising input costs, supply chain issues, and upward pressure on wages).

Conferences and Webinars

11 August: UBS Genomics 2.0 and Medtech Innovations Summit (Laguna Beach, CA)

11 August: UBS Financial Services Conference (Virtual)

12 August: Canaccord Annual Growth Conference (Virtual)

12 August: J.P. Morgan Auto Conference (Virtual)

12 August: Wolfe Research ‘Tipping Point’ Private Real Estate Conference (Virtual)

13 August: Credit Suisse FinTech Conference: Private Company Focus (Virtual)

Contact Us

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The views expressed in this article are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals.

©2021 FTI Consulting, Inc. All rights reserved. www.fticonsulting.com

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