IR Monitor – 06 March 2024

In this week’s newsletter:

In this week’s newsletter:

• Stock markets are booming. But the good times are unlikely to last. If The Economist is right about this, it may become challenging to manage investors’ expectations
• Hunt to set out plans for private companies to trade shares on exchanges, as explained in the Financial Times. Investors would be able to sell stakes on a limited number of days under a proposal to be included in the Budget
• IR Magazine on the changing way IR teams are using LinkedIn: companies are getting more sophisticated about how they share investor-focused information
• UK groups need to pay executives more, says LSEG chief 
• IR Society panel on investor activism – your FTI correspondents attended
• And finally … the cheekiest IR question ever asked?

This week’s news

Stock markets are booming, but it’s unlikely to last – The Economist 

The Economist’s latest take on record breaking stockmarkets won’t make pleasant reading for CEOs. Its authors suggest that the incredible gains of recent years can be chalked up to low corporate taxes & cheap debt, rather than stellar management or excellent decision making. With higher interest and tax rates expected, the environment is becoming increasingly less favourable, with earnings likely to drop in the years ahead. It won’t be easy reading for IROs either, as it may be challenging to manage investors’ expectations given market shifts, with an increase in shareholder activism a likely side effect. Indeed, for the exceptional returns of recent years to continue, investors would need to stretch valuations even further or hope for substantial earnings growth. If valuations return to their mean, real earnings will have to grow at 9% p.a. to generate even half the returns which equity investors have enjoyed since 2010. Despite clear optimism linked to generative AI, the technology is still in early days and today’s environment is likely to pose significant challenges to corporates and investors alike.

Will private companies be able to trade shares on exchanges in the UK?

As explained in the FT, the UK Treasury is planning a consultation on a regime which would allow UK private companies to have their shares bought and sold on exchanges. Chancellor Jeremy Hunt hopes that the initiative, which would give investors an opportunity to sell down their stakes in private companies on a certain number of days each year, will be launched before the end of 2024. The Private Intermittent Securities and Capital Exchange System (PISCES!) would offer liquidity without the costs and regulatory burden that often come with a public listing. This forms part of Hunt’s so-called Edinburgh reforms and aims to bolster the UK’s capital markets, which continue to be hit by investment outflows, a dearth of IPOs and a number of re-listing in foreign jurisdictions. By enhancing institutional investors’ direct access to private companies, and enhancing private companies’ access to capital markets, the Government hopes that the scheme will encourage more businesses to stay in the UK. The system might also benefit investors, who will be able to connect more easily with institutions that want to back private companies. 

Social media communications becoming more sophisticated

Companies are getting more savvy with their use of LinkedIn, IR Magazine reports, with an increasing number of companies using the social media platform as a mechanism for sharing investor-focused content. This trend has been driven by new LinkedIn tools – such as videos, polls & newsletters – whilst the wide variety of stakeholders present on the platform make it possible to appeal to a broader audience. In offering an ideal platform for updates that might feel unworthy of an official press release, LinkedIn enables IR professionals to be more versatile and, indeed, more creative with the info they share with their networks. However, whilst some companies have set up dedicated IR accounts, there is still some way to go to reap the full benefits of social media, as well as several risks along the way. Channels which become too narrowly focused on financial information run the risk of losing sight of a company’s broader narrative, while resources are needed to keep them active enough to engage audiences. Looking ahead, experts say, it will be important to coordinate approaches between different accounts and define a clearly articulated messaging strategy. 

UK groups need to pay execs more

David Schwimmer, the head of the London Stock Exchange Group (LSEG), has suggested that UK companies need to increase executive pay to compete with their US counterparts, reports the FT. Schwimmer, whose pay package is set to increase by 76% this year to £11m pending shareholder approval, argues that London needs to attract world-class talent to maintain its position as a global financial centre. LSEG is benchmarking the pay package against those offered by leading US data groups. The average salary for FTSE 100 CEOs in 2022 was £4.4 million, while S&P 500 CEOs earned three times more on average. Schwimmer’s comments echo the view of Julia Hoggett, the head of the London Stock Exchange, who previously stated that UK executives should be paid more to retain talent. LSEG reported revenues of £8 billion in 2023, with IPO and equity market trading revenues falling 8.8% against 2022. Unsurprisingly, the exchange is working with regulators to improve the appeal of the London stock market amid concerns about declining liquidity and higher valuations in the US.

IR Society panel on investor activism

Last Wednesday, the IR Society organised a breakfast panel on Investor Activism, expertly hosted by Eva Petrakopoulou of S&P Global Market Intelligence. The distinguished panellists— including Robert Schuchna of Cevian Capital and Jocelyn Brown of T.Rowe Price—engaged in a dynamic discussion, sharing valuable insights gleaned from their respective fields. The discussion delved into the nuances of shareholder activism, distinguishing between different approaches such as short-term event-driven – and often hostile – actions and long-term constructive engagements. The panel also highlighted the most common areas of activism, emphasizing corporate governance, ESG and M&A as the most common hooks. The importance of being thoroughly prepared was mentioned several times as a crucial element for effective activism preparedness. Panellists shed light on their distinctive strategies and engagement methodologies, offering a comprehensive view of shareholder activism in today’s market. “Making friends before you actually need them”, within the shareholder register, was probably the most important takeaway.

And finally … cheekiest IR question ever?

David Schwimmer continued to make waves after LSEG’s FY results this week, following his appearance on Bloomberg TV. As expected, the conversation revolved around his planned compensation upgrade and how it compares to executive packages in the US. However, the most surprising moment occurred at the end of the interview when the presenter posed what can only be described as the cheekiest question ever: “Do you think the LSEG would trade on a higher multiple if it were listed in the US?” Possibly the ‘brass neck’ question of the decade.

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