IR Monitor – 3 July 2024

In this week’s newsletter:

• Thoughts from NIRI’s annual conference: your FTI correspondent Rose Zu attended
• The disappearing act: Forbes on why the stock market is fading
• ‘Markets are chaotic, not random’: understanding market dynamics with IR Magazine
• Companies will have to disclose spending on worker pay for the first time; despite corporate pushback, the FASB has voted to require U.S. public businesses to break out things like employee compensation in the footnotes of their financial statements
• UK listing reform is too important to be stalled by small stakeholders: Alphaville
• And finally … one company has an unusual IR problem: Nvidia sales grow so fast that Wall Street can’t keep up. The chipmaker’s revenue beats have made projections hard

This week’s news

2024 NIRI conference: our team reports back from San Francisco

Upon returning from the 2024 NIRI Annual Conference, FTI’s Rose Zu revealed some top insights to help IROs and IR teams to strengthen their operations for enhanced results. The headline: communicating a compelling investment story & strategy is more important in these turbulent macroeconomic times than ever before. Controversially, the conference concluded that companies are getting stuck in the ‘politics’ wayside by spending too much time talking about ESG. Integrate ESG into your IR message, get the credit and get on with it, for lack of a better word. On the topic of buzzwords, AI was on everyone’s lips, but not necessarily in a desirable shade. The conference highlighted that IROs are still in the dark about its capabilities and have not yet considered the knock-on effects it could have on data security. Considering the limitless potential of AI, it seems a missed opportunity to ignore it all together. If you would like to learn more about the conference, read the full takeaways on our website.

The stock market is fading: Forbes

The number of public companies has reached a new low as a slew of large private companies have chosen to stay private for the foreseeable future, according to Forbes. The sheer abundance of capital available in private markets, around $8.2 trillion, means that companies can avoid the invasive processes, regulation and reporting associated with going public. And why would companies want to when public investors are notorious for throwing their proverbial toys (shares) out the pram at the first sight of danger? Private companies are under no obligation to share as much information with investors which also reduces valuation volatility to a certain extent – although private market valuations are being increasingly challenged. Of course, the stock market is extremely unlikely to disappear altogether, but the reality is investors may have to tap into the private markets to invest in the cool, innovative, fast growing companies for fear of missing their peak.

How to steer choppy market waters, according to the IR magazine

IR Magazine’s latest Think Tank had one key message: IROs need to know which ‘bucket’ their company falls into. It’s clear that markets aren’t random – when there’s good news, the share price goes up and vice versa. The market works best with patterns and stability, so IROs need to question if their messaging is clear and can stand the wear-and-tear of macroeconomic volatility. Having an investor narrative that can neatly fit into one category also helps algorithms and AI-based trading to identify where your company lies. The Think Tank came up with some solutions to help combat volatility: develop personal relations; ensure your information is correct and understand the themes of the week/month and how they relate to your sector. These tips may seem common knowledge, but sometimes the simplest answers work the best!

Companies will have to disclose spending on worker pay – WSJ

Despite corporate pushback, the Financial Accounting Standards Board (FASB) has introduced a new rule requiring U.S. publicly traded companies to enhance transparency in their financial statements. As reported by the Wall Street Journal, this unanimously approved rule aims to give investors a clearer view of company operations through wider disclosure. Starting with annual reports in 2027 and quarterly reports from 2028, companies will need to provide greater information on employee compensation. While they must provide a breakdown of employee compensation expenses within each item line, they are not required to reveal the total compensation figure. Despite the move towards greater transparency, business giants like Apple and Starbucks have raised concerns about the costs and limited benefits of this new requirement, urging the FASB to reconsider the proposal. As the FASB continues to refine its new rule, it remains to be seen whether the increased transparency will ultimately benefit investors or simply add to the already complex package of disclosure requirements.

UK listing reform is too important to be stalled by small stakeholders

A coalition of corporate governance bodies and pension funds is calling on the UK FCA to reject proposed changes that would allow dual-class share structures (DCSS) without mandatory sunset clauses and remove the need for shareholder approval on major transactions, reports Alphaville’s Craig Coben. In a compelling open letter, the International Corporate Governance Network (ICGN) and UK pension funds argue that these reforms could deter investments in UK-listed companies, increase the cost of capital for British firms, and weaken London’s stature as a global financial hub. The ICGN emphasises that the UK’s robust governance standards are a magnet for global investors and warns that lowering these standards could compromise market integrity. Interestingly, despite their advocacy for strict governance in the UK, ICGN’s members, including significant investors, often allocate capital to other markets with looser governance standards. This discrepancy adds another layer to the heated debate, where proponents of the reforms push for a balanced approach to rejuvenate London’s equity market without sacrificing strong governance.

And finally … a company with an unusual Investor Relations problem: Nvidia sales grow so fast that Wall Street can’t keep up 

Nvidia Corp. currently holds the title of the most expensive stock in the S&P 500 Index, trading at roughly 23 times projected sales for the next 12 months. This unique position has presented an unexpected challenge for both Wall Street analysts and Nvidia’s own executives, who have struggled to accurately forecast the company’s earnings amid its consistent outperformance in recent quarters—a nice problem to have, but a problem nonetheless. Despite these forecasting difficulties, or perhaps because of the outperformance, Nvidia’s exceptional profitability and sales growth compared to peers like Microsoft and Apple continue to draw investors. However, concerns linger about its ability to sustain such a growth trajectory and justify its lofty stock price, as reported by Bloomberg. As Nvidia’s stock price continues to defy gravity, the question on everyone’s mind is: can the company’s remarkable run of outperformance be sustained, or is it simply a matter of time before reality catches up with its astronomical valuation?

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