IR Monitor – 27th July 2022

This week’s news

Webinar: Focus on macro & markets

Last week, FTI attended the IR Society’s Webinar: Focus on Macro and Micro markets which sought to extract expert opinions on where the economy is heading and what the greatest challenges for companies are. Sanjay Raja, a sell side economist at Deutsche Bank, opened the session with his data showing that recession models are pointing to an ‘uncomfortable reality’ and that consumer habits have already begun changing as a result of the cost-of-living crisis. He also emphasised that imports are up over 20%, meaning the pound is under unsustainable pressure. Roger Lee, from UK Equity Strategy at Investec, offered insight into the status of equities, concluding that the first half of the year has seen the worst performance for equities in many years and advising investors to remain defensive and have earnings security and valuation awareness. Finally Matt Bennison, Fund Manager at Schroders, gave perspective on the situation of companies, many of whom (with a decent margins profile & reasonable long term growth profiles) look a lot cheaper now than they did seven or eight months ago. Crucially, M&A is a big feature of the equity market as international buyers become ever attracted to the UK.

The juggling act: How to manage a balance sheet in troubled times 

The Economist is siding with the plight of CFOs this week as it examines the consequences of squeezed profits and pricier debt. Less than half of the big  firms in the S&P 500 index reported that their latest quarterly results last week beat expectations for sales and earnings, a miss which falls below the average in recent quarters. CFOs must constantly monitor a firm’s mix of debt and equity but a decade of cheap credit has created a borrowing binge. This does not mean CFOs are necessarily stressed though- lots took the opportunity to strengthen their balance sheets during the pandemic, a time of large issuance and low interest rates. On a more positive note, businesses are investing in the future, with capital spending for S&P 500 firms rising by 20% in Q1. Ultimately, CFOs must continue their relentless juggling act as shifting from returns to investment and monitoring profits and interest rates remain crucial.

PE pounce to take companies private 

According to Reuters, more private equity firms are taking companies private, as low valuations make exiting the stock market a bargain. Private equity-backed transactions accounted for $117 billion of total U.S. delistings in the first half of 2022, up 72% from a year earlier. This reflects the eagerness of private equity funds to use their massive unspent capital during a time of great difficulty for companies who are facing a challenging economic situation, labour shortages and supply chain issues. For company directors, the dilemma is whether to accept an offer from a sponsor delivering a meaningful premium to the current price or hope that the stock market recovers…and quickly.

The SEC on a perilous path 

The precedent that Gary Gensler, chair of the SEC, has set will make it easier for future SEC bosses to play fast and loose, according to BreakingViews. Since President Joe Biden picked him to run the markets watchdog in February 2021, Gensler has been involved in a range of different regulatory initiatives. Among this, plans to rein in companies that go public via SPACS and proposals to standardise and increase climate-related disclosures are just for starters. The SEC wants companies to disclose more about how climate risks affect their business. However, BreakingViews warns that there are signs of mission creep as the SEC strays into territory best left to the Environment Protection Agency. Moreover, Gensler’s broader disdain for the rule-making process has its own perils:  “once norms are tossed aside, it’s hard to bring them back”.

Pension savers prioritising returns over ‘woke’ investments 

For all the alleged enthusiasm for sustainable investing, the majority of people prioritise returns on savings over “woke” investments, new research presented in The Telegraph has found. Just one-fifth of working adults think their pension funds should prioritise investing in companies that align with their social, moral or ethical values, while 82% believe the return on investment is the most important factor. The research, commissioned by the Centre for Progressive Policy (CPP), showed that – even of the 31% who prioritised investing for a moral purpose – the “vast majority” said they would only consider it if their returns stayed the same or actually increased.

And finally… The power lunch is dead

In the good old days it was the default meeting format for companies, brokers and investors. But now the corporate 1pm booking is over, say restauranteurs, replaced by the “You Only Live Once” blowout with family and friends, as reported in The Times. Once upon a time, people sat down for lunch at a corner table in one of London’s most fancy restaurants to discuss potential M&A advice or a large consultancy agreement but the age of Zoom calls and hybrid working has taken this off the table. Deals are being completed without dressed crab and chilled Chablis; the “power lunch” is dead.

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