IR Monitor – 21st December 2022

This week’s news

London suffers IPO ‘drought’

CNBC reports that initial public offerings (IPOs) in London fell by more than 90% this year, with 40 companies listed on the London Stock Exchange’s main and alternative investment markets compared to 123 in 2021. Total funds raised dropped from £14.3bn to only £1bn. The drop in UK IPOs is part of a broader slowdown in listings globally, which were down 45% year-on-year in the first three quarters, according to S&P Global. The fall in European funds raised in the first nine months of the year was between 76% and 80%, compared to 93% in the UK. Factors contributing to the slowdown include weak economic growth, rising interest rates and concerns about the performance of British firms.

Nine top tips for direct engagement

IR magazine suggests that, for the past few years, direct engagement between IR teams and fund managers has been steadily gaining momentum but only recently have IR professionals become savvy about engaging directly in effective & innovative ways. Increasingly, direct engagement has become a two-way process. Not only are IR professionals targeting and contacting prospective investors but hosts of investors are also eliminating the middlemen and making contact with companies directly. There are nine tips for IROs to further direct engagement: understand the changing buy side, rethink the IRO’s role, prepare to be ‘always on’, fine tune your targeting strategy, get creative with networking, customize your ‘elevator pitch’, use ‘virtual’ to your advantage, work with brokers to think outside the box and, finally, gather feedback. Offering direct corporate access has become an important element of institutional investor relations. IR teams of all sizes can simplify the process of meeting co-ordination with the support of a dedicated tech tool.

CFO responsibilities in investor relations will grow in 2023

Accounting Today has examined the role of the Chief Financial Officer (CFO) in investor relations, arguing that it has become more complex, with a focus on environmental, social, and governance (ESG) issues and global risk transparency. Investors are demanding more information and updates at a higher level of detail and frequency. In the future, the ability to gain access to affordable capital will depend on comprehensive ESG strategies, which require measurement and benchmarking to set, achieve, and surpass sustainability targets. In addition, investor relations professionals should focus on risk management, showcasing strategies and being transparent about risk exposure. This includes using scenario planning to anticipate and prepare for potential disruptions, as well as being proactive in communicating with investors and analysts to address concerns and provide updates.

The stock market must not be another land that time forgot

The Times has observed that the number of companies listed on the LSE has dropped by over a third in the past 20 years, with fewer than 2,000 currently listed. This represents a low point not seen since the 1860s, according to stock exchange historian Ranald Michie. Yet public companies are three times more likely to invest in research and development than private companies, according to a report by the Department for Business, Energy & Industrial Strategy. However, liquidity in the market is decreasing (particularly at the bottom end) and costs are high (with small caps potentially paying an extra £500,000 in annual fees compared to private companies). The UK government has announced measures to modernise the public equity market, including simpler prospectuses and the restoration of independent equity research. These measures should benefit small companies across the country that cannot easily gain access to foreign funding or to retail investors.

ChatGPT can already write the routine earnings preview and review as well as many sell-side analysts

The FT reports that Wolfe Research’s head of quantitative research, Yin Luo, has used OpenAI’s ChatGPT chatbot to write a research note on the link between corporate lay-offs and stock performance. ChatGPT was able to find academic papers on the topic, scrape data from three lay-off databases, and write a report on the relationship between layoffs and stock performance. The report found that while the relationship between lay-offs and stock performance is not always negative, there is evidence to suggest that lay-offs can have a negative impact on a company’s stock price. The size and scope of the lay-offs, the reasons for the lay-offs, and the broader economic context can all affect a company’s stock price. J P Morgan’s TMT salesman, Jack Atherton, has reportedly used ChatGPT to write one of his daily emails with “impressive” results. The emergence of AI systems like ChatGPT may put certain jobs at risk, including routine tasks like the earnings previews and reviews performed by sell-side analysts. To survive, analysts will need to focus on tasks that require more human judgement and creativity. Will the poor IR officer be next in line?

And finally …what makes a good annual report and accounts?

The Financial Reporting Council has opined on ‘What makes a Good Annual Report and Accounts’, setting out the attributes for a high-quality ARA. This is a key document for corporate reporting, providing investors with information on a company’s performance and prospects to inform their decision-making. While some companies produce high-quality ARAs, others may publish documents that are both lengthy and full of boilerplate text, making it difficult for readers to find the key messages. Research has shown that companies with higher-quality ARAs tend to have lower costs of debt and equity capital, more accurate analyst earnings forecasts, and more constructive dialogue with investors. In addition, high-quality corporate reporting is less likely to be subject to regulatory intervention. We are sure that producing the highest quality ARA is on everyone’s mind as December 31st approaches and we thank all readers of the IR Monitor for their support in 2022.

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