IR Monitor – 11 October 2023

In this week’s newsletter:

• Investors hope earnings season will revive stocks, suggests the Wall Street Journal. Investors are interested in what quarterly earnings results and commentary from company executives reveal about the state of the consumer
• The LSE had a disappointing summer, with only five IPOs between June and August.
• American stores lost $73 bn to theft last year, reports Reuters. Few chains report specifics, however, stirring doubts about anecdotal evidence. Consistent disclosure would help keep investors from also getting fleeced
• Liquidity is shrinking when it’s most needed, warns Hardman. Their work demonstrates that, in 2016, the total value traded of companies listed on the LSE was 61% of their average market cap in that year. By 2022, that percentage had fallen to 44%
• “Responsible” investments experienced record net outflows of £448 million in August,  in the latest sign that the love affair with so-called greener funds may be waning
• And finally … We have a ‘generational opportunity’ to stop using that phrase

This week’s news

Investors Hope Earnings Season Will Revive Stocks – Wall Street Journal 

With recent times causing concern, for investors, earnings season is a key upcoming focus point investors will look at to try and revive stock prices. According to the Wall Street Journal, market sentiment has recently been heavily influenced by the path of the Fed’s policy moves and bond yields, with bond yields hitting a new fifteen-year high in the U.S. The next week could have a major impact on the Fed’s interest-rate setting plans, with some of the country’s biggest banks & companies releasing their earnings, including JPMorgan Chase, Citigroup, PepsiCo & Walgreens Boots Alliance. Investors will also be interested in the state of the consumer, with various factors such as household spending and the restarting of student-loan payments flagged as key focus areas. With management teams commenting on first trends for Q4 and the points above being taken into consideration, investors will be hoping earnings season will revive the price of stocks.  

Summer ‘drought’ for IPOs in London

After a volatile year in stock markets,  this summer has been a quiet period for capital raising activity on the LSE. As discussed in the Times, a total of five companies listed on the LSE between June and August, raising a combined £359.8 million, with most of this amount being linked to the £291.5 million IPO of CAB Payments in early July. This only reaffirms the trend we have seen this year, where only 23 companies have raised a total of £953 billion on the LSE. This is down year-on-year, as 34 IPOs occurred in 2022, representing £1.2 billion. However, despite all the gloom and doom around primary equity capital market activity in the UK currently, the article also highlights that the global trend is not showing a more positive picture. Capital raised across global stock markets in the first three quarters was indeed down ~30% to £102 billion. But optimism remains intact, as a widening pipeline of private companies have delayed their IPOs over the last 12 to 18 months and are now firmly waiting for their turn…

American stores lost $73 billion to theft last year – BreakingViews

Whilst retailers are currently battling with difficult market conditions, a large and growing problem is losses due to theft. As reported by Reuters BreakingViews, of the $112 billion decline in sales reported for 2022 by the National Federation of Retailers, shoplifting and other stealing accounted for about $73 billion, an 18% rise from the previous year. Different retailers are deciding to adopt different strategies in dealing with the problem. Whilst Target is increasing its security and closing nine stores, blaming crime for the decision, other retailers such as Gap and Costco Wholesale aren’t as concerned and don’t see the losses as a major issue. Moreover, for such a large and growing problem, there is little consensus on how to inform investors about it. Reuters speculate here as to whether theft is sometimes being used to mask operational missteps or other issues. 

Liquidity is shrinking when it’s most needed, warns Hardman

In 2016, total value traded for companies listed on the LSE accounted for 60.6% of their average market capitalisation in that year. However, that percentage fell to 44.3% in 2022, affecting small and mid-caps the most. But what are the implications of low liquidity? A share or market with reduced liquidity is less desirable to investors as it reduces their ability to invest and disinvest at the most relevant price. As a result, investors may restrict their investments to the most liquid companies, generally those that are already included in equity indices. So, what can companies do to address low liquidity? According to a recent analysis conducted by Hardman & Co and Winterflood Securities, company leadership can enhance liquidity, notably through better communication. For instance, investing in IR and financial PR (of course) can help cultivate a compelling company narrative, increasing media coverage can bolster the company’s profile, while increasing sponsored research and holding more retail investor events can also contribute to increasing liquidity according to the research.

Green funds losing shine for investors 

A recent analysis by the Investment Association (IA) revealed that in August 2023 only, responsible investment funds experienced historic net outflows of £448 million in the UK. The Times has called this the latest sign that the love affair with so-called greener funds may be waning. According to the IA, responsible investment funds under management totalled £96 billion at the end of August, with their share of industry funds under management at 6.9%. But they were not the only funds to fall out of favour. Fixed-income funds also experienced a decline in investors as bond yields rose, with outflows reaching £356 million – the first net loss since October 2022. However, overall funds saw net inflows as UK savers invested a net £354 million into funds, owing largely to the popularity of tracker products which more than doubled to £1.6 billion in August. The most prominent asset class in this category was equity funds, attracting inflows of £652 million. 

And finally…We have a ‘generational opportunity’ to stop using that phrase

In the world of corporate communication, obfuscation is not uncommon, particularly within the finance sector, which is renowned for its use of complicated jargon. Recently the FT’s Alphaville shed light on a troubling uptake in the use of the term “generational opportunity”. Notably, large companies like Salesforce and Adobe have started using this phrase in their earnings calls. Pass the sick bag. So, helpfully the Financial Times has compiled a list of instances where this phrase has surfaced recently, demonstrating why it’s NOT a good idea to use it. In the words of Thomas Jefferson, ‘The price of freedom is eternal vigilance’ or something to that effect.

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