IR Monitor – 12th October 2022

This week’s news

IR Forum in Paris last week provides an interesting perspective  

IR Magazine’s forum in Paris last week, which FTI attended, provided an interesting perspective on the hopes, fears and priorities of the European IR community. Most of the attendees were concerned that markets will be stuck in a recession for 18 months. 59% of them believe that IR budgets will be unchanged this year, 38% of them hope that budgets will be increased and only 3% fear that budgets will be cut. In terms of top priorities for the next six months: 31% prioritise finding new investors, 17% focus on communicating more with current shareholders, 14% on refining the equity story, 14% on investing in new technology, 6% on increasing analyst coverage whilst another 6% are focused on getting management on the road. There was a reasonably long tail of lesser priorities about which there was little consensus.

Top investors supported ESG proposals only 7.5% of the time

A report from activist investor platform Tulipshare has uncovered that the top ten institutions have “poor and inconsistent ESG voting records”, despite increasing demands from retail investors. The activist platform examined the AGM votes of the ten biggest global asset managers for the top 20 companies (by market cap). It found that, whilst the Biden administration made it easier for shareholders to submit proposals in the US, the biggest asset managers only supported ESG-focused shareholder proposals 7.5% of the time. What’s more, the report revealed that some asset managers voted inconsistently on ESG issues, bringing into question the methodology behind their decisions. It’s not for retail investors’ lack of trying. In polling, the report found that 24% of people would consider switching pension provider if they knew their current provider was not voting for the firms they invest in to reduce their carbon emissions.

The accounting treatment of stock options in cash flow statements leaves investors perplexed

Big variations in cash-flow figures have prompted a debate on the accounting treatment of stock options, says the Wall Street Journal. With the ever increasing number of tech companies listed on stock exchanges, analysts and academics have noted a corresponding increase in the number of stock options adjustments to cash from operations and free cash flow. Sanjeev Bhojraj, professor of accounting at Cornell, suggests that the current “systematic” overpricing of stocks is reminiscent of the sky-high values during the 1990s tech bubble. Meanwhile, an investor advisory committee to the US SEC held a panel event last month and concluded that standards for cash-flow reporting should be tightened further by the FASB. This added to other comments that it was time to revisit accounting rules which were last updated in the 1980’s.

How to communicate with investors and guide in uncertain times

Last Thursday, FTI attended the ‘Ask me Anything’ Q&A session hosted by the UK IR Society, where panellists from across the IR community discussed the opportunities and challenges currently facing IR professionals. Whilst the consensus was that the IR community is braced for a recession, investors are more eager than ever to rely on companies’ guidance. It was however commonly agreed that issuing guidance ranges, as opposed to single metrics, could be unproductive and confusing. Meanwhile, it is not just investors and analysts who need to be engaged at uncertain times – panellists also acknowledged the role of IR in communicating internally, shaping employees’ view of investors and increasing financial literacy among internal stakeholders.

An earnings call primer 

In a webinar this week, IR magazine shared best practice on how to conduct earnings calls, ahead of a particularly tense Q3 earnings season. Both speakers emphasised the need to have multiple contingency methods in place in case of unforeseen circumstances materialising during the call. Whilst an earnings call is the best opportunity in the quarter to convey a message to the shareholder base, it also puts the company in a position of high risk. Management preparation is therefore key, particularly around the tone and delivery of messages and to anticipate conversations with fast money investors and the company’s hardest critics. The panellists gave their outlook on next quarter, suggesting that ESG will be overshadowed by supply chains challenges and a looming recession. The webinar’s final piece of advice: be sure your financial reporting is accurate and guidance is achievable, as management’s credibility is essential and can be easily jeopardised by inadequate communication.

And finally… Listen to the analysts, not to the management, says the Financial Times

New research has shown that within quarterly earning calls it is the sentiment of analysts, not the sentiment of management, that most significantly indicates future stock performance. A natural language processing algorithm discovered that – despite only speaking for a small length of time on earnings calls – the signals analysts send matter more than those of the CFO or CEO. As it turns out it may be the questions, and not the answers, that count for more.

Contact Us

To be added to the distribution list for the IR Monitor, or for further information on the dedicated investor relations team at FTI, please contact [email protected].