IR Monitor – 13th April 2022
Investor Relations News
We begin this week with a look at the latest changes that it is hoped will provide the London Stock Exchange with a much needed boost. Next, we reflect on the data projecting the second-best year for FTSE dividends on record, followed by a report on the need for careful calculations when considering a share buyback. Then on to the rise of the retail investor, and how they are wielding more power at shareholder meetings than ever before. With rising interest rates, inflation, and war in Ukraine we also ask how corporate profits have remained so apparently resilient and suggest that the answer may lie in good old-fashioned earnings management. We wrap up this week with a new study looking at the benefits and pitfalls of managers with MBAs.
This week’s news
London listings: Teaching an old bourse new tricks
Given a stellar performance by the London Stock Exchange last year, we look at how the LSE intends to remain competitive this year. In 2021 the LSE raised the most equity capital outside the US and Greater China and even attracted its first special purpose acquisition company, Hambro Perks, which raised £150m in November. With London’s eye on further growth and attracting big tech, IR Magazine has explored the latest regulatory developments that are hoped to achieve these goals. These include the recently published Primary Market Effectiveness Review by the FCA which, among other things, will reduce free float requirements and increase the minimum market capitalisation threshold. LSE Group’s Head of Equity and Fixed-Income Primary Markets, Charlie Walker, commented that “these reviews are essentially asking, how do we make sure London is fit for purpose?”
FTSE dividends set to have second best year ever
Investment Week has reported on the latest data from AJ Bell which projects £81.2bn in dividends by the close of this year, with the FTSE 100’s net profits now anticipated to reach a record £169.7bn in 2022. Standing out among the rest are Rio Tinto (which is set to be the index’s single biggest dividend payer this year with £7.4bn) and Persimmon (which is expected to be the highest yielding stock at 11.2%). Overall, 97 FTSE 100 firms are anticipated to pay a dividend in 2022, compared with 91 in 2021 and only 85 in 2020.
After record year, time for CFOs to rethink aggressive buybacks
With buybacks becoming an increasingly attractive method of enhancing EPS growth, CFO Dive has looked at how companies can make the most of their buyback programmes. Research from management consulting firm Fortuna Advisors has revealed that most companies which executed buybacks last year achieved a return on investment that exceeded their total shareholder return for the previous five years. Yet Fortuna has also cautioned against any premature moves, pointing out that 44% of companies sampled bought back more stock above than below their long-term price trendline. Indeed, to maximise the impact of buy backs, Fortuna CEO Greg Milano recommends that companies turn to their valuation frameworks to recognise when, and by how much, their shares are undervalued and increase repurchases during these particular periods.
The rise of the retail investor
Retail investors are increasingly showing up to – and exerting influence at – shareholder meetings, as Oscar Williams-Grut has pointed out in the Evening Standard. Hybrid AGMs and events make meetings far more accessible than before, with individuals able to log in on their lunch break rather than travel to in-person conferences. Management can expect more informed, and more detailed scrutiny, from a new breed of investor who is clued up on issues such as climate impact and supply chains. Simultaneously, there’s been an upsurge in organisations and platforms designed to help these retail investors leverage their collective power – the IR Officer should beware that they won’t be ignored any longer.
What you’re expecting from earnings won’t happen
Next, we turn to the surprising resilience of corporate profit outlooks despite the worsening war in Ukraine and the rapid rise in interest rates. According to Bloomberg, earnings estimates for the FTSE EuroFirst 300, which covers companies based in Europe, have somehow risen against a dismal backdrop. What’s behind this? Nicholas Colas of Data Trek Research suggests that Wall Street analysts cut back their Q1 estimates to give companies a better chance of beating their predictions. This is then followed up by a course-correcting increase in Q2 – Q4 numbers to capture FY earnings estimates more accurately.
And finally… Degrees of nastiness
MBAs are nasty to employees but nice for investors. This is the tentative conclusion of Investors Chronicle which cites a new study by Daron Acemoglou (author of Why Nations Fail). His research looks at the impact of a CEO having an MBA on company performance and employee wellbeing. Whilst companies in the US see a 5% increase in stock market value after appointing an executive with an MBA, employees at the company see their wages decline by 6%. Aggressive cost cutting is – after all – a sure-fire way to improve company performance, despite the tired promises to look after employee wellbeing which many lift from the ESG playbook.
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