IR Monitor – 19th July 2021

This week’s news

The evolving role of investor relations

IR Magazine hosted a webinar last week to discuss the evolution of the IR Officer and how the last 18 months will shape the nature of the job for years to come. The participants noted that the IR officer has moved away from a comms-focused role to become a trusted finance partner for the entire team and board, with financial acumen playing an increasingly important role. There was a general consensus that expectations of IR as a function depend on the view that the CEO and CFO have and in the context of the rise in SPACS, direct listings and IPOs, a comprehensive IR programme is vital for a company’s voice to be heard by investors. The webinar also discussed feedback on presentation style, noting that most investors prefer a “less is more” approach to presentations. The participants looked at the provisions IROs can make for a blended approach to investor relations in future, with some events offering both physical and virtual options. The participants noted that investors still want access to management so in-person meetings will be important to facilitate this.

Flush with cash, companies are looking to mergers and acquisitions

US large cap companies are sitting on some sizable war chests, and many cash-rich companies are mulling plans for that capital as the global economy recovers, Nasdaq has reported. The piece states that in some industries, buybacks are an option and dividend growth is soaring, but many companies are looking for other ways to spend, including through M&A. Some market observers see increasing consolidation as a broader market catalyst and there has already been a brisk pace of mergers and acquisitions in the banking industry this year where sluggish deposit and loan growth makes consolidation all the more attractive. However, the piece cautions that investors should remember to see the forest through the trees as substantial M&A activity can also indicate that companies are struggling to drive organic growth and are willing to take increased risks to drive profits.

GraniteShares reveals top 10 most shorted UK stocks and 10 most active fund managers using shorting

Cineworld Group, the world’s second-largest cinema chain, was the most shorted UK listed company as of 12th July 2021, with some 7.5% of its stock held short by six investment firms. This is according to new analysis from ETP provider GraniteShares, which also revealed that the next most shorted UK listed companies were Sainsbury, Petropavlovsk, Hammerson and Domino’s Pizza Group where the short positions were 6.9%, 6.2%, 5.8% and 4.8 % respectively. In terms of which fund managers had the most short positions in UK listed companies, the analysis reveals GLG Partners LP had the highest number with 18, followed by BlackRock Investment Management, Jupiter Investment Management and Marshall Wace. CEO of GraniteShares, Will Rhind, stated that “shorting stocks used to be the exclusive pursuit of institutional investors, but sophisticated individual investors are now increasingly doing this.” He added that the uncertainty around the Covid-19 pandemic and the strength of the global economy is contributing towards a more attractive environment for shorting certain stocks.

Disclosure dilemma: when more (data) leads to less (information)!

Over the past few decades, publicly traded firms have had to face an increased number of disclosure requirements, making annual reports and regulatory filings heftier than ever. Whilst these new reporting additions have been driven by the belief that more disclosure is always better for investors, Aswath Damodaran’s Musings on Markets blog has argued that these well-meaning attempts have had the reverse effect, leaving investors more confused than even before. Damodaran suggests the legalese, double-talk and buzzwords that now litter SEC filings result in less rational and reasoned decision making by investors, who lose sight of the important details. In order to combat this problem and avoid further information overload, Damodaran suggests that companies should limit disclosure space; remove disclosures that draw disproportionately on boilerplate language; and use market price reaction as an indication of whether investors actually find these disclosures useful.

75% of asset management firms do not want to return to pre-Covid working arrangements

The return to physical roadshows will face the challenge of trying to track investors down in person. According to a study by Magellan Advisory Partners, 75% of asset managers would like to see the post-Covid hybrid working environment become a permanent fixture, with almost 60% preferring to spend only three days in the office per week. ‘Team cohesion’ was the main driver behind the desire to return to the office, alongside cross-departmental collaboration and Zoom fatigue. Fund houses also indicated that diversity and inclusion will be at the forefront of return-to work policies, with greater consideration given to employees’ unique circumstances.  Investment Week has noted that despite the enthusiasm to embrace new ways of working, it won’t be all change upon return to the office, with managers seeing ‘significant resistance’ to the idea of swapping designated desk space for hotdesking.

And finally … Keep it snappy, stupid. 

Saying things concisely can be tricky, and often requires time and preparation. However, Bloomberg’s John Authers has pointed to research from Nomura Instinet which suggests that it is worth the extra effort. Examining how the length of corporate earnings calls affects a company’s subsequent performance, Nomura found that over the last seven years, the average stock outperformed the 10% of companies whose earnings calls dragged on the longest by a cumulative 15%. Whilst a long earnings call can simply result from a company having a lot to explain, an overly verbose presentation could also be a sign of trouble. Authers suggests that the next time you’re stuck in a lengthy earnings call and are tempted to sell the stock in frustration, it might not be such a bad idea.

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