IR Monitor – 6 December 2023

In this week’s newsletter:

In this week’s newsletter:

• The Global Roadshow Report 2023 from IR Magazine examines how IR teams are organising their in-person events, the long-term impact of virtual roadshows and whether issuers still rely on brokers to the same extent to help plan their travels
• How AI will change investment and research: where previously the sell-side analyst played the pivotal role between company and investor, now “any operator will be able to create plausible comments with credible data” as the Financial Times puts it
• It’s time to accept that the best bosses need to be paid more, argues Oliver Shah
• The US IPO market could see a flurry of activity in the new year, according to Bloomberg. Good news for the US IRO market as well
• One way to deal with a hostile investor: Moulding employs ‘Pac-Man defence’ as Kelso urges THG break-up. The Times has the story
• And finally …  Every time you hear EBITDA, just substitute it with ‘bullsh*t’. 

This week’s news

IR Magazine releases its Global Roadshow Report 2023

IR Magazine’s Global Roadshow Report, which was recently released for the 14th time, examines how IR teams are organising their in-person events, the long-term impact of virtual roadshows and whether issuers still rely on brokers as much as they used to. Covering the period between Q3 2022 and Q3 2023 and using data from 983 listed companies, the report indicates that lingering Covid-era adaptations now allow firms to tailor their engagement plans. While not fully back to 2019 levels, the past year has been the busiest since the pandemic. Multi-day tours or in-person roadshows are once again the overall format of choice, though virtual events remain a popular option for companies with a market cap less than $1 bn and those headquartered in Asia, where travel restrictions were slower to ease. Brokers are providing event management support in greater numbers, with JPM named the most-used broker globally for in-person and virtual roadshows. And while New York and London retain their strategic edge, IROs designated Singapore as their preferred Asian city, a sign of its relevance as a global financial hub.  

AI will change investment & research

If sell-side analysts have played  a pivotal role between companies and investors so far, “any operator will be able to create plausible comments with credible data” according to the FT.  The author asks investors and investment banks to apply a degree of caution in their adoption of generative AI. While potential benefits are clear (democratisation of research, efficient hypothesis testing), AI is far from perfect in many domains, not least investing. For one thing, disruption is difficult when the companies with the means to develop highly bespoke models tend to be those large institutions. Moreover, AI has been shown to make fewer predictive errors than human forecasters, but errors nevertheless. According to the author, who has headed up research at MS and UBS, day-traders and institutions alike are susceptible to over-reliance on immature technology. For AI to thrive as an investment tool, firms must dedicate time and energy to implementation and refinement. The current best application of AI relates to the analysis of past events. Forecasting future events, given an uncertain market, still requires (human) critical thinking.

It’s time to accept that the best bosses need to be paid more

In The Sunday Times last weekend, Oliver Shah proposes a knowingly controversial solution to the London Stock Exchange Group’s lagging global competitiveness: pay CEOs more. He focuses on David Schwimmer, a former Goldman Sachs banker and chief executive of the LSEG. The recent prevailing narrative has warned of the LSEG losing its competitive edge over New York (punctuated by the choice of Arm Holdings to list on the NYSE). But Shah points out that Schwimmer’s period of leadership coincided with a doubling of LSEG’s market cap, whilst his salary dropped from £6.9 million in 2021 to £4.7 million in 2022. Meanwhile, his counterpart at the ICE – which operates the NYSE – was paid  a salary of USD $16.7 million (£13.2 million) in 2022. Overall, median chief executive pay for the largest-cap NYSE companies rose by $22.3 million last year, and just £3.9 million for FTSE peers. A pay rise for Schwimmer was implied by the most recent LSEG annual report, and welcomed by the article which congratulates the LSEG board for “putting its money where its mouth is.”

The US IPO (and IRO) market could see a flurry of activity in the new year

After two very difficult and slow years, there might be signs of a revival of the US primary equity market in 2024, according to Bloomberg. Included in the potential list of companies considering going public is Skims, Kim Kardashian’s underwear label, valued this summer at $4 billion and said to be mulling strategic options. Social media firm Reddit, whose users championed the meme-stock frenzy in 2021, is also holding talks with potential investors and aiming for a listing as early as the first quarter. There’s also been word on the street that the fast-fashion retailer Shein has been approaching US regulators to lay the groundwork for a potential IPO. This is all music to the ears of ECM bankers who have had to contend with yet another slow year in 2023, where volumes barely surpassed 2022… which was already the country’s worst year in over a decade.

Moulding employs ‘Pac-Man defence’ as Kelso urges THG break-up

25 years since London’s first “Pac-Man defence”, a hostile takeover prevention strategy named after the ‘eat or be eaten’ arcade game, a new player has entered the game as reported in The Times. Matthew Moulding, founder of THG, has acquired a 3.2% stake in activist investor Kelso Group as a strategy against Kelso’s push for the sale of THG’s nutrition business and a breakup of THG’s beauty business. The break-up idea was loudly criticised by Moulding, who also publicly discussed the widening valuation gap between London and New York- listed firms. Many in the City thought Pac-Man defences were a thing of the past, with one saying “I love the hostile bids, but those days are long gone.”  Time will tell if the strategy comes back into fashion and manages to protect THG effectively.

And finally … Every time you hear EBITDA, just substitute it with ‘bullsh*t’. 

In his recent newsletter, Simon English reflects on his interactions over the years with Charlie Munger, who passed away last week. The American businessman, most known for his leadership of Berkshire Hathaway, once told Simon English that every time you hear EBITDA, you should substitute it with “bullsh*t”,  cautioning against the uncritical use of EBITDA in financial discussion. This advice, given during the dotcom boom, underscores his scepticism about the metric’s reliability, especially when actual pre-tax profits were scarce. The metric has made somewhat of a return recently as internet stocks have followed a similar pattern to the dot com boom, but as Simon English concludes: “if you’re buying into EBITDA as actually real, you are in disagreement with Charlie Munger. Which means you are wrong.” RIP Mr Munger.

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