IR Monitor – 5 June 2024

In this week’s newsletter:

• Is the London market regaining its fundraising mojo? asks Craig Coben for the Financial Times. IPO activity in London has been sluggish, but that is poised to change
• Riyadh calling? Saudi wealth fund’s local focus worries global asset managers, warns Bloomberg. In a sign of the recent pivot, the PIF — once among the most prolific investors in American stocks — recently cut its holdings there to $18 billion from $35 billion
• Bosses are talking less about ESG. Data reveals fewer mentions of climate change and diversity
• Election fever grows, but IR teams warned about talking politics. Moreover, IR Magazine suggests most teams don’t view elections as having a major impact on their businesses
• CEOs can hurt their companies if they stay too long. When’s the right time to say bye?
• And finally … cut it out! says Liberum. Corporate reports are getting longer and longer & earnings calls aren’t getting any better either. Investors have to wade through a swamp of clutter and legal disclosures to find the actual information. Luckily, chatGPT can help

This week’s news

Is the London market regaining its fundraising mojo? Craig Coben

Another week, another ray of sunshine on what has so long been a gloomy London market. In his recent FT piece Craig Coben describes the UK’s capital as a “buzzing hotspot for raising equity.” The statement comes off the back of National Grid’s £7 bn rights issue and this week’s whisperings of fast fashion behemoth Shein’s plans for a London listing after pushback from American regulators. This solid pipeline of potential new listings, including financial sector names such as Monzo, Shawbrook and OakNorth, combined with the underperformance of UK stocks that have moved to the US, paints a hopeful picture. However, Coben also warns that much of the good news hinges on specific sometimes fleeting circumstances that are distracting us from the reform the UK stock market desperately needs. London faces supply and demand challenges as an equity-raising forum. On the supply side, the UK isn’t producing enough homegrown champions to appeal to fund managers. On the demand side, years of disjointed policymaking have hollowed out the domestic equity investor base, pushing pension funds and insurance companies away from listed stocks. 

The PIF: Saudi wealth fund’s local focus is a worry, warns Bloomberg

In a sign of a recent pivot, the Saudi’s Private Investment Fund— once among the most prolific investors in US stocks — recently cut its holdings there to $18 bn from $35 bn. Bloomberg reports that this step change has caused concern amongst asset managers who are worried that the PIF will channel more money locally, into local mega-projects, rather than outwards. It’s a stark shift from recent years, when wealth funds from the Middle East were eager to deploy billions of dollars with some of the world’s largest investors – these days they seem to focus more on opportunities at their own doorstep. “For some time, it seemed like everyone wanted a piece of the Saudi pie that the PIF was serving. Plenty of people simply saw the fund as a bottomless war chest,” said Robert Mogielnicki, senior resident scholar at the Arab Gulf States Institute in Washington.“ The reality is that the PIF operates under various constraints, and the rapidly expanding scale and scope of investments have significantly increased its obligations.”

Bosses are talking less about ESG

ESG continues to fall out of favour with executives, a stark step change from a few years ago when it was the top bullet point on everyone’s talking point sheets. Bloomberg has analysed financial presentations by the 100 biggest European and American traded companies during the latest results season and found a sharp drop in references to environmental, social and governance issues. Climate change and related terms generated 269 mentions in the US so far this quarter — more than 60% fewer than a year earlier. The decline in ESG’s popularity is particularly prominent in the US which has been subject to increased polarisation and culture wars. Republican politicians and conservative groups have launched a string of legal challenges against so-called “woke” corporate policies, mainly on the basis that they violate a duty to maximize returns. 

Election fever grows, but IR teams warned about talking politics

As the world prepares for a pivotal year of elections, it seems investor relations (IR) teams are adopting a more level-headed approach to election uncertainty. Elections, with their inherent unpredictability, increase the stress levels for IR teams, making it trickier to present a clear narrative to investors and analysts. With major economies like the UK, India, and the EU set to hold elections this year, seasoned IR professionals understand the importance of focusing on their bread and butter: effectively communicating their company’s value proposition to the market. In fact, when IR Magazine conducted a survey on the importance of various macro and political issues over the next year, IR professionals relegated national and international elections to third-to-last place. Topping the list? The usual heavyweights: inflation, central bank policy, and energy prices.

When’s the time to say goodbye? 

The age-old question of when a CEO should step down has long plagued Corporate America. Take Warren Buffet; with 54 years under his belt he is the longest-tenured CEO in the Fortune 500 and stock prices are still hitting new highs. In contrast, Fred Kindle’s short three-year stint at ABB yielded a staggering 262% return for shareholders. A 2021 study of S&P 1500 companies found that, on average, a company’s value tends to peak around a CEO’s 10th year, followed by a decline after the 14th year. However, relying solely on averages is insufficient. CEO tenures are as distinct as their leadership styles, booting CEOs solely because they have reached the decade mark isn’t always the best decision. As Fortune Magazine aptly asks, how can companies truly know when it’s time for a CEO to go?

And finally … cut it out! 

In the complex world of corporate reports and earnings calls, it’s easy to get lost in a sea of jargon and legalese. But fear not, because language models like ChatGPT are helping analysts and investors wade through the clutter and uncover the valuable information hidden beneath the surface, according to Liberum’s thought of the day. Research suggests that up to 70-75% of the content in these reports can be reduced without losing essential information. When the noise is filtered out, the sentiment and information content not only become more pronounced but also have a bigger impact. Both positive and negative news is amplified, making it easier to identify. This may account for why companies often obscure negative information by crafting lengthy MD&A statements. However, it raises the question of why positive news is also obscured by unnecessary complexity. As language models continue to evolve, they may hold the key to simplifying financial reporting and making it more effective.

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