Capital Markets & Investor Relations

IR Monitor – Monday 12th October

Investor Relations News

This week we begin by discussing the long game CEOs should be playing, according to McKinsey, to ensure their companies thrive. We then look at the latest delays to EU legislation on green-washing, before moving on to consider the negative effect the government loan schemes are potentially having on viable companies. We then explore how Britain’s largest companies have prevented shareholders from holding company bosses accountable during the pandemic, before looking at the extent of private equity takeovers in the UK. Finally, we look at how investor relations are hoping to get the show back on the road, and what lessons can be learnt here from the return of Premier League football.

This week’s news

Long and strong

Covid-19 has disrupted business in ways that many could never have imagined and, in many sectors, no amount of preparation would have helped. However, the warning signs were clear – even prior to Covid-19, the average company experienced a supply chain shutdown of at least one month every four years. Reuters cited McKinsey research that publicly traded companies need to move their focus from the short-term to the long-term, not only to protect against risks, but because it can significantly increase market capitalisation. Yet short-term focused business behaviour is increasing, largely because executives have faced demand from investors and board members to prioritise short-term results. Instead, companies should sustain value by increasing revenue and generating returns on invested capital which exceed the cost of that capital. If there ever was a time for executives to change their ways, it is now.

It’s not easy being green 

The EU has agreed to delay implementing a rule to make it easier to judge how ‘green’ asset managers are, giving in to pressure from Europe’s €17tn investment industry, the Financial Times has reported. The new rules are designed to clamp down on “green-washing” and make it easier to compare ESG funds. While the new legislative framework would still be introduced in March, asset managers would be given more time to comply with the new requirements around disclosure. This has created concern around the potential for asset managers to simply drag their feet, potentially until 2022. It has also been taken as a sign that Brussels is compromising on its targets due to the challenge of establishing an entirely new set of ESG metrics.

The walking dead

The founder of one of the UK’s biggest pub chains, Hugh Osmond, has warned that the emergency government assistance to help companies survive the pandemic could have unintended consequences by turning formerly viable companies into “zombie basket cases”. The Times reported that Mr Osmond claimed the Chancellor’s loan schemes were simply masking the pain that many businesses are feeling, and argued that the economy needs equity investment, not debt. Over £60bn has been lent through four taxpayer-backed lending schemes, with the government stating that companies will be given assistance to repay the loans. However, Mr Osmond questioned how much debt would be paid back, given the implementation of new government restrictions which will see numerous industries “torn to shreds”.

AGMs withold voting access

It has been suggested that smaller shareholders lost their say during the pandemic. Amid Covid-19, the Financial Reporting Council found that of 202 AGMs announced by FTSE 350 groups, 163 were closed to physical attendees. The FRC found that 30 of these closed meetings lacked the provision for retail shareholders to question the board or to vote. The Financial Times reported that 30 physical meetings were held, however, these did not offer any live voting or online access. Companies criticised for their failings on shareholder rights included Direct Line and the Royal Bank of Scotland. In comparison, Marks and Spencer was praised for its excellent practice with over 1,500 attendees of their digital AGM, and treble the questions asked to the board in comparison to last year. The FRC have advised all companies to facilitate online participation in the future, to allow boards to be questioned and held accountable.

Will UK be the bargain bin?

Bloomberg reported on so called buyout barons regaining their appetite for U.K. assets and London-listed stocks. Since the Brexit Referendum U.K. stocks have been unwanted, with the effects of Covid-19 compounding wariness.  The lack of buyers within the market has acted as a magnet for private equity, as evidenced by competing bids for Asda, and the sale of William Hill Plc. The perception that U.K. regulations hamper take-private deals has been created in recent years following reforms made after the controversial sale of Cadbury’s.  However, deal activity held up in 2019, in part due to Sterling’s weakness. The current economic outlook places U.K. companies in a precarious position as private equity gets more aggressive and as share prices of businesses are seen to be much lower than standalone value. However, these depressed prices may be where private and public equity investors are able to meet.

And Finally … 

Likening the world of Investor Relations to football, IR Magazine discussed the next phase of virtual IR events, and the potential they hold. In a humorous approach to the situation, the suggestion of contactless greetings through a camera-friendly elbow bump was paired with the idea of improving atmosphere via computer generated noises to any pertinent points made during presentations. The discussion reached its pinnacle by suggesting the use of water breaks throughout presentations to alleviate times of intense pressure and to provide strugglers the chance to motivate themselves for the rest of the session.

Conferences

October 13-15: UK Opportunities Conference (Virtual)

October 14: Pan-European Discovery Conference (Virtual)

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