IR Monitor – 6th September 2021

This week’s news

Pension crackdown risks dividend recovery

After dividend levels slumped last year, pay-outs to shareholders in some of the UK’s biggest companies bounced back in the first half of 2021, according to new analysis. The Financial Times has reported, however, that City investment experts are feeling uncertain about that recovery continuing at pace, with new pension rules set to come into force next month which could slow FTSE 100 pay-outs within weeks. Actuaries LCP said companies with defined benefit pension schemes could see their dividend recovery stall as the UK Pensions Regulator takes on new powers as of 1 October. Under the new rules, company directors and others involved could face a legal challenge if a dividend payment leads to a “material reduction” in the recovery that a defined benefit pension scheme can expect to get in the event of an insolvency. LCP said that could put the kibosh on pay-outs for some of the FTSE’s largest companies after a strong post-pandemic recovery.

The SEC keeps up scrutiny of earnings management

In August of this year, the SEC settled an action against Healthcare Services Group (HCSG) for reporting inflated earnings per share (EPS) that met research analysts’ consensus estimates for multiple quarters. This is the latest in a string of enforcement actions stemming from the SEC’s EPS regime, a data-driven initiative designed to uncover potential accounting and disclosure violations caused by earnings management practices. The three companies which have been caught in the crosshairs of the EPS Initiative have paid a total of over $12 million in penalties and charges were brought against individual officers who agreed to pay significant fines. Morrison Foerster LLP has advised issuers to pay very close attention to their documentation, metrics and compliance procedures to avoid the wrath of the SEC.

The future of meetings

Now that many companies are reopening their offices and reconfiguring their work arrangements into something hybrid, they are also rethinking their approach to meetings. Love them or loathe them, these tete-a-tetes are an integral part of modern business. Managers must therefore decide which parts of the remote experience, if any, they want to keep. The Economist has reported that a poll of more than 7,000 people in ten countries by Zoom found that two-thirds would prefer a mix of virtual and in-person meetings in future. Unsurprisingly, many aren’t convinced by the longevity of remote meetings. Wall Street bosses, in particular, have taken a hard-line position against remote work, including meetings. JPMorgan’s boss, Jamie Dimon, has made the firm’s fleet of private jets available to managing directors. This summer an informal contest kicked off at the bank, with employees awarded points for face-to-face client meetings. But fully virtual meetings are not going anywhere. OpenExchange, a firm that provides virtual and hybrid events for companies and investors, expects to run 200,000 of them in 2021, up from 4,000 in 2019. Presumably, the future will lie somewhere between Dimon’s hard-line opposition and a full-scale embrace of remote meetings, but for now things are looking indeterminate.

What do investors want from disclosures

Thursday saw the release of the latest risk report from the Financial Reporting Council. Tackling the question of what investors want to understand about risks and opportunities, the report aims to help close the gap between what investors want to see in disclosures and what is actually released. Feeding back on discussions with investors, while also sharing case studies and best practice examples, the report suggests that while many investors are happy with how companies communicate around opportunities, communication around risks and potential negative scenarios and events still leaves quite a bit to be desired. Breaking down what investors want into four clear categories – governance and processes, the nature of potential risks and opportunities, the approach of a company to risks and opportunities and the planning around scenarios and stress testing – the FRC acknowledges that many firms now view the four in an interconnected manner. However, this new approach does not always translate into “useful disclosure”. Whether it is better explaining the models and estimates used to measure risk or giving more detail informing investors on how a company considers the external environment, the report is clear in stating that there is work to be done.

Ticker talk

As retail investors continue to enter the market, ETFs get more thematic and Elon Musk’s tweets carry more weight, the value of having a memorable or even slightly humorous ticker is something individuals and firms are beginning to consider, plan for and even set money aside for. Opening up with a proposal around creating a liquid market in stock tickers, Bloomberg’s Money Talks last week followed the journey of its journalist Katie Griefeld as she tried to buy a ticker on the grey market. With a budget of up to a quarter of a million dollars, Griefeld discovered along the way that she, perhaps, is not the only person engaging in such acts, making unsolicited approaches for high-profile tickers. Tasked with acquiring the MEME ticker, Griefeld found herself locked in negotiations with Roundhill Investments, an organisation that reserved the moniker at an exchange before deciding exactly what to do with it. While Roundhill were not up for selling, instead putting the ticker to use in an EFT which aptly tracks so called ‘meme stocks’, Griefeld digs into just how valued a good ticker is becoming.

And finally…unicorns make way for dragons

Remember the term unicorn? This was the name given to privately-held start-ups with a value of $1 billion or more. It is now being replaced by the dragon. With the number of companies matching the criteria to be a unicorn reaching over 800 this year, Axios have laid out the case for a new label. Being in a club of 800 doesn’t make a company rare, and certainly does not merit mythical status. As a result, in establishing the criteria for dragon status, Axios have set out a tough framework of credentials which at present just 19 companies satisfy. To become a dragon, a company must be valued at $12 billion or more, net of venture funding, a move designed to negate the inflation of some valuations by investment capital. It must also destroy whatever is in its path. SpaceX, Epic Games and Plaid are some of the lucky dragons at present. As time goes on and the club undoubtedly expands, we await to see what the age of dragons will eventually give way to itself.

Contact Us

To be added to the distribution list for the IR Monitor, or for further information on the dedicated investor relations team at FTI, please contact [email protected].