IR Monitor – 13th July 2022
Investor Relations News
This week, we outline the main conclusions from an IR Magazine webinar which provided the audience with expert counsel on how to approach activist investors and to build a sustainable & trustworthy relationship. Next, we take a look at the stock split club, quickly acquiring members from some of the largest US companies including Amazon and Apple, and last week GameStop. We then look at increasing concerns over the power wielded by environmental and proxy advisers, whose influence is reaching unprecedented levels. Thereafter we take stock of London IPOs, which have seen their funding crash 94% year-on-year in the first half of 2022. In other news, FTI will be sponsoring this year’s Middle East Investor Relations Association (MEIRA) Conference in Riyadh this October, and the Co-Lead of FTI’s Middle East Strat Comms practice talks capital markets and investor relations in the region in an interview with MEIRA. Finally, companies looking to raise debt are getting creative (again!) with their ebitda definitions to maintain more favourable leverage ratios.
This week’s news
How to prepare for engagement with activist investors
The latest IR Magazine webinar saw a panel of experts urge IROs to get out of their silos, be vigilant in monitoring & assess company vulnerabilities. The panel included Chris Newcome, IR director at Quinix, who encouraged IR teams to proactively engage with activist investors to avoid being on the back foot; this view was echoed by Mike Coffey, representing Q4 at the conference. Ed Greene, managing director of Georgeson, emphasised the importance of embedding IR values across teams so that all contact to activist investors is communicated via the designated IR team. Final comments came from Jim Rossman, co-head of capital markets advisory at Lazard, who warned that management should know its vulnerabilities inside and out to protect itself from any unwanted surprises.
Meme favourite GameStop jumps on the share split bandwagon
A four-for-one stock split will make owning shares in GameStop more affordable, according to Reuters, although a strict mathematician might dispute this claim. After the announcement went public, shares of the company increased by 5.8% which would seem to vindicate it. 2021 was a strong year for GameStop which reaped the rewards of attracting retail traders on social media platforms such as Reddit. These customers were determined to buy up, on a mission to exile the hedge funds betting against them. However, the tribulations of 2022, including the war in Ukraine and a looming recession, have taken a toll and the retailer’s shares have decreased by around 20%. GameStop joins a host of other major U.S. companies like Apple, Tesla and Amazon who have also opted for stock splits in the last two years. The split is, of course, an optical illusion which lowers the share price without affecting the valuation.
Review into City advisers accused of pushing left-wing world view
The Financial Reporting Council are reviewing ‘ethical’ shareholder advice groups, and their alleged ‘left-wing’ agenda, according to The Telegraph. It comes after concerns that institutional investors operating in the Square Mile are prevented from backing perceived ‘non-ESG’ sectors such as defence. Nor does it stop there; some rating agencies lump together defence with tobacco, animal testing companies and oil & gas – all of which are likely to be denied an ESG label. This unprecedented level of power is increasing fear that decisions at some of Britain’s largest corporations are too often subject to ‘box-ticking’ behaviour by the ESG agencies many of which have a political agenda to boot.
Floats dry up on London stock market as volatility puts off companies
In the first half of 2022, 26 companies floated on the LSE, compared to 47 in the first half of 2021. Year-on-year, the amount of money raised in London IPOs fell by 94%, from £9.4 billion to £595 million – a staggering drop as reported in The Times. Political and economic volatility have firmly put management teams off public markets. EY’s latest IPO Eye report suggests that floats will stay flat throughout the rest of the year, although the longer-term IPO pipeline is arguably healthy as companies wait for markets to recover.
FTI Consulting to Sponsor MEIRA Conference 2022 in Riyadh
London may be dry but in the Middle East its raining IPOs. FTI Consulting will be sponsoring this year’s Middle East Investor Relations Association (MEIRA) Conference, set to take place in Riyadh rather than Dubai for the first time, this coming October. Ajith Henry, Co-lead of FTI Consulting’s Middle East Strat Comms practice, spoke at length with Alicia Gallego-Martinez, Senior Manager at MEIRA, sharing his views on the region’s capital markets scene and where issuers can excel in the world of investor relations. Watch the full interview here.
And finally… Ebitda: creative accounting
Many loan term sheets now avoid giving definitions of ebitda, in a move designed to allow companies to avoid breaching covenants. The FT suggests that an increasingly fluid ebitda calculation is one way in which borrowers are getting creative in their bid to raise more money. Adjusted ebitda can allow companies to add back all sorts of items (including merger and acquisition deals which have been contemplated, though not yet completed, and research and development charges that are usually regularly recurring). Lenders, including hedge funds, are ostensibly the victims of this although (as the FT also points out) they have signed covenants in full awareness of the risks.
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