Capital Markets & Investor Relations

IR Weekly – Monday 7th September

Welcome to FTI Consulting’s IR Weekly newsletter.

In this week’s edition, we discuss FTI Consulting’s findings in our new white paper analysing the increasing scrutiny public companies face on corporate governance. Next, we look at the strategy of stock splitting, which saw Apple become more valuable than the FTSE 100 last week, before discussing Iridium’s attempts at quantifying the value of Investor Relations. In addition, we discuss the recent delisting of Rocket and ponder what this may mean for listed companies during the pandemic. Furthermore, we hear about the Financial Reporting Lab’s advice on reporting on Section 172 through their conversation with the IR Society. And finally, we look at the working from home trend and wonder how much longer we will be working out of our own living rooms.

This week’s news

UK AGM Season 2020 Review & Highlights 

In collaboration with Proxy Insight, FTI Consulting have launched our new white paper, AGM Season 2020 Review & Highlights, which reviews AGM voting for FTSE 350 companies in the first half of the year. The research indicated that institutional shareholders have continued to heavily scrutinise corporate governance at companies in which they invest, particularly over the role that the business plays in society. While average support levels for companies have remained consistent over the past five years, the percentage of resolutions and companies facing significant opposition has increased markedly. Most notably, as a recent example, FTSE 100 asset manager M&G opposed more than 30% of pay reports at annual meetings for FTSE 350 companies this year, compared with only 6% last year – a clear signal of the increasing trend of public company scrutiny.

Stock splits

The Times reported that Apple, after splitting its stock, is now worth more than all of Britain’s biggest 100 listed companies combined. Stock splitting is a practice where one share of a company is split into a larger number of said shares, which neither changes its underlying economics or intrinsic value. However, it prompts investors to buy shares, and makes them more affordable to everyday investors. As a result, Apple’s market value of $2.3 trillion now towers over the $2.1 trillion market capitalisation of the FTSE 100. American electric carmaker Tesla made similar moves after implementing a five-for-one stock split on the same day as Apple, announcing plans to raise $5 billion through share sales. FT Alphaville offered an interesting defence of stock splits a few weeks back.

The value of IR quantified  

With the release of their report, The Value of Investor Relations Quantified, Management Consulting firm Iridium have set out to crack the ‘IR Algorithm’. Previously, most companies have refrained from investing sufficiently in investor relations due to a lack of any real proof of the value it adds. However, the Iridium Quant Lens Machine Learning platform (which was built on classic finance theory foundations that a company’s stock price is derived through an evaluation of risk relative to return factors by market participants) is the first of its kind in the world. Its algorithms claim to have explained up to 98% of bank valuations and found that the quality of investor relations is a highly material factor consistently influencing valuations of GCC banks. This has potential implications for convincing boards and management teams of the relevance of IR and the value that strong IR strategies add to a company’s valuation.

Delisting is rocket science

Tim Bradshaw of the Financial Times reported on the recent ‘trend’ of delisting from the stock market. Using Rocket Internet as an example, the article cites the many reasons for which companies may choose to delist especially at a time like this when many businesses are suffering; “freeing up administrative and management capacity and reducing costs.” Rocket is said to be offering its current investors €18.57 a share in a tender offer ahead of the vote that will finalise the delisting in September.

Section 172 

Section 172 of the UK Companies Act 2006 incorporates the concept of enlightened shareholder value together with a list of non-exhaustive factors that directors ought to take into account in promoting the success of the company. This was the subject of a recent podcast organised by The IR Society in discussion with the Financial Reporting Lab. Marie Claire Tabone from the FRL explained that their recently launched project on Section 172 was driven by the fact that many companies were struggling with the new reporting requirements. This is the first year that companies have to report on how they have met the duties underlined in Section 172 and so far many have been reporting this in different ways. The FRL have been working with investors to understand what information will be most useful for them and are aiming to publish a set of tips for companies as they prepare for the second part of the Section 172 reporting. Alongside this, they will also be publishing general advice on reporting on customers and suppliers next summer.

And Finally … vast majority of workers stay home

The Telegraph reported that several large financial institutions expect their London offices to stay empty this month, as offices are only gradually seeing staff return. Aviva expect 10 percent of their city staff to return this month, whilst Credit Suisse expects a few hundred of their formerly 5,500 office-based city staff to return. Other institutions that report similar situations include JP Morgan which has gone as far as rewriting their office rules and stating that staff will not need to come back in on a full time basis, in perpetuity. Barclays and HSBC have not yet encouraged any employees to return this month, while Standard Life Aberdeen and NatWest have told staff to work from home until 2021. This puts the UK in a different situation than Europe, where 70% of office workers are already back according to Morgan Stanley. In the meantime, Bloomberg reports on the ‘Zoom Boom’ that continues to rise as a result of people working from home for what may be even longer than formerly anticipated.

Conferences

Goldman Sachs European Medtech and Healthcare Services Conference, 9-10 September (virtual)

Contact us

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