IR Monitor – 30 October 2024

In this week’s newsletter:

• Meet the Fund Manager: your FTI correspondents attended breakfast with the IR Society
• Wall Street activists are grabbing for low-hanging fruit: activist shareholders are having a moment, according to Bloomberg
• Global Investor Relations Practice Report 2024: the state of IR in the world and Europe
• If you want your company’s stock to go up, hire wonkier IT people:  Alphaville
• How CFOs can give good earnings guidance: a closer look at the art and science behind companies’ earnings guidance and why “beat & raise” is becoming ever more important
• And finally … Is ESG Inherently flawed? HBO’s Industry wants viewers to decide, suggests Bloomberg. Elsewhere, the Wall Street Journal is puzzled by the show

This week’s news

Takeaways from IR Society’s “Meet the Fund Manager” breakfast

Last Tuesday, we attended IR Society’s “Meet the Fund Manager” webinar, which was led by Romney Fox, Senior Investment Director at abrdn, Richard Marwood, Senior Investment Manager at Royal London, and Tim Lucas, Portfolio Manager at Newton Investment Management Group. Aside from an overall consensus that they received too many feedback requests from issuers, all three managers explained their respective investment processes and the practice of investing against the current U.K market. The growing share buy-back culture in the U.K. was also largely discussed, as was what separates good from bad IR. FTI picked up on two key takeaways: the first one is an appreciation for C-suite visibility and for C-suite involvement outside of Capital Markets days. The second was the need for improved corporate access. While brokers were recognised as important intermediaries, direct engagement between investors and issuers is increasingly seen as a norm. And as speakers closed the session, they provided a brief touch on AI use, noting it was not expected to entirely automate anyone’s jobs due to limited business use cases so far.

Wall Street activists are grabbing for low-hanging fruit – Bloomberg

While discussing the recent acquisition by Starboard of a stake in Kenvue, Bloomberg’s Liana Baker recently explained that many companies have already been doing what activist shareholders are traditionally prescribing. This primarily includes spin-offs and carve-outs, in a context where many companies are blamed for “choppy” M&A strategies. The Bloomberg journalist stresses that, in many cases, there is not much heavy lifting to be done by the company or pressure to be exerted by activist investors for these traditional objectives to be achieved. And in some cases, the success of traditional activists lies in their ability to take credit for existing ‘activist measures’ or for initiatives already implemented by companies without any activist pressure. As some issuers appoint activist delegates to their board, Baker goes further and questions how much activist shareholders really achieve, and how much comes from the company’s own practices.

Global Investor Relations Practice Report 2024: the state of IR

IR Magazine has been studying the approach of various Investor Relations teams around the globe to understand how firms are approaching IR today. The research report, based on a survey of 550 IR practitioners worldwide, provides insight into the operations of various IR teams across the globe and a holistic look at the evolution of IR, specifically in Europe. Among other insights, the report points to a budgetary shift for IR teams globally, with IR budgets increasing and Europe seeing a four-year high in overall spending. With a lower allocation towards external services, smaller firms are having to make an active effort to shine amongst their much larger peers. Governance norms within IR teams are also being reviewed, as well as the amount of time spent on IR initiatives, with senior managers in Europe spending the least amount of time on IR efforts. 

If you want your company’s stock to go up, hire wonkier IT people

It appears that, contrary to popular belief, AI could be busy creating jobs before it has an opportunity to take them away, opening the door to further benefits along the way. According to FT Alphaville, there seems to be a correlation between stock performance and the target recruitment of wonky IT people. Turning to AI job ads as a method for measuring technological progress at corporations, Adam Lauretig and Ryan Preclaw, of Barclays’ data science team, have filtered job ad data to determine which companies are hiring AI specialists, rather than creating “digital prophet” type roles. The experiment has been running for a year and results revealed that an equal-weighted top quintile of “AI sophisticates” delivered a 31.8 per cent return since mid-October 2023, versus 30.2 per cent for the S&P 500 Equal Weighted index. As algorithms have their own limits, investors are encouraged to apply the research based on their individual strategies and specific AI hiring patterns to make best use of the findings.

Guidance: Why “beat and raise” is becoming ever more important

This week’s CFO Briefing by Bloomberg explores the art of earnings guidance and why CFOs are feeling the pressure to “beat and raise” their targets — especially when faced with today’s volatile market environment. Nina Trentmann explains that a company’s ability to meet guidance is seen as the best indicator of how rigorous and credible a management team can be. Perhaps unsurprisingly, companies have become more conservative around giving guidance lately, revealing a clear trend towards “underguiding”. As a result, while in the early 2000s, there was an equal proportion of companies beating and missing guidance in the US, the proportion of corporates beating guidance today is far larger. And according to a recent academic study, companies providing “lowball” guidance typically see an increase in their share prices for up to four consecutive quarters. With this in mind, providing realistic guidance while clearly delineating “controllables” versus “non-controllables” is the best way to maintain credibility with investors, as surprises can damage credibility. 

And finally … Is ESG Inherently flawed? 

“Can you be altruistic and can you also want to make money?” Bloomberg explores the third season of HBO/BBC’s Industry, as the show dives into the contentious world of ESG within the financial sector. Speaking to co-creators Mickey Down and Konrad Kay, they explore both the potential and pitfalls of ESG, highlighting a backlash against its vague applications that often lead to corporate greenwashing. Incorporating real-world insights from banking advisors, they find that, while ESG aims to enhance societal impact, it often gets co-opted by profit-driven motives, leaving viewers questioning whether ESG is fundamentally flawed or merely misused. Elsewhere, the Wall Street Journal found that the details aren’t quite adding up in this past season. Critics point out inconsistencies, such as why traders are involved in an IPO and the implausible scenario of a bank nearly collapsing due to a failed ESG pivot.

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