IR Monitor – 24th May 2021

This week’s news

Brexit can boost London as a financial centre, says Klarna boss

As Europe’s most valuable start-up, Klarna is undoubtedly one to watch as is its potential blockbuster listing in London. The Telegraph last week reported that the company has called for Singapore-style deregulation in the UK, stating that one factor in its decision to move ahead with a London listing is the question of whether the Government uses its post-Brexit freedoms to slash EU red tape. Sebastian Siemiatkowski, CEO, said Brexit had provided an “amazing opportunity” for the City to be at the centre of the fintech and banking industries, and hoped the Government “follows the lead of Singapore” in easing the burden of regulation on the industry, adding that he wants rules to let customers “shift banks in the click of a button”. Another factor for Siemiatkowksi, in his evaluation of a good listing place for Klarna, is the burden of quarterly reporting traditionally borne by companies listed in Continental Europe or in the USA.

The changing role of the investor relations officer

Harvard Business Review last week argued that a monumental shift in today’s equity markets has redefined the relationship between companies and their investors; CEOs today are navigating a new world in which activist shareholders and long-only investors are increasingly willing to weigh in on company strategy, ESG, executive pay, and board composition. With investor activism increasing and world markets gripped by uncertainty, CEOs need a new breed of skilled investor relations officer (IRO) to bridge the gap. More specifically, the IRO job must change in four key ways: articulating strategy; investor intelligence gathering; cultivating the right investors, and sounding the alarm when trouble is brewing.

US and European companies report forecast-crushing earnings rebound

Whilst earnings season in the US market comes to a close, and it remains in full swing across Europe, one thing is clear: analysts have underestimated just how much of a bonanza the global economic recovery delivered in the first quarter of 2021. The Financial Times has reported that, on both sides of the Atlantic, earnings are now above pre-pandemic levels. In the US, this is shaping up to be the best quarter in at least a decade, with year-on-year earnings growth of more than 50%. Here, some 87% of companies that had reported by the end of last week beat estimates, the largest amount since Refinitiv began tracking the data. While Europe is only about halfway done, year-over-year earnings growth is pointing to a 93% increase, based on a blend of reported results and estimates.

Elsewhere in M&A

Matt Levine of Bloomberg has analysed the need to hire specialists in the world of corporate finance, particularly the need for an M&A department, suggesting that there is a trade-off in having one – namely that the existence of an M&A department may result in better acquisitions, but it may also result in more of them. Conversely, the absence of an M&A department may cause more haphazard acquisitions, but fewer of them. Levine cites another paper which focuses on addressing the claim that firms with specialised M&A staff make better acquisitions. This paper finds that M&A departments are good at picking targets to acquire, and good too at keeping down costs of further advice. On the other hand, to the extent that M&A departments also make more deals, this may be a bad thing; one theory of M&A (especially popular with investors) is that acquisitions are largely a way for CEOs to build empires: “aggrandising themselves by making their companies bigger even at the cost of shareholder value”.

Companies Are Flush With Cash—and Ready to Pad Shareholder Pockets

The Wall Street Journal has commented on the change of heart at US boardrooms this year in comparison to last, as companies across industries have been buying back stock and increasing dividends. According to Goldman Sachs, $504 billion of share repurchases have been authorised this year as of May 7th, which is the most during the period in at least 22 years. This comes as the US economy starts to return to normal; Lori Calvasina, head of US equity strategy at RBC Capital Markets has said “The Covid clouds are clearing, and optimism is starting to come back in.”

And finally … Carbon is now the buzzword on corporate earnings calls 

Tired of hearing about COVID, EBITDA or ESG? Make way for carbon. Based on a UBS analysis of call transcripts, mentions of carbon and associated keywords have tripled over the past three years, reaching 1,600 per quarter. The FT has reported this news as global sustainable fund assets climbed 18 per cent in Q1 2021, and as the momentum in green investing has driven up the valuations of low carbon companies. The research from UBS has also found that investing in a portfolio of sectors with lower emissions intensity has led to improved returns in comparison to the broader market. Critics say that ESG is responsible for momentum, rather than valuation, and the outperformance will end once the interest in sustainability stabilises.

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