IR Monitor – 8th February 2023

This week’s news

UK dividends forecast to shrink in ’23

The FT reports that investors are anticipating a fall in dividends paid by UK listed companies this year, as inflationary pressure continues to dampen company profit margins. Fund administrators Link Group have predicted that dividend payouts will decline 2.8% to £91.7bn in 2023, as the volume of special dividends is expected to revert back to a typical year’s average. This comes after a favourable period for dividend-seeking investors, who last year enjoyed a post-pandemic dividend rise of 8%. This dividend boom was expected to continue, reaching full pandemic recovery by 2025. However, analysts now label this figure ambitious, with pay-outs needing to rise 6% in 2024 and 2025 for this to be achieved. Last year, banks and oil companies were significant contributors to the dividend boom. The article argues that growth expected from these two industries should enable UK plc to enter the recession with profits covering dividends comfortably and providing some share price support.

The future looks messy for passive FM

In an opinion piece for Bloomberg, Merryn Somerset Webb reflects on the successes of passive money management over the last 20 years and suggests this period may have come to an end. Whilst passive funds have consistently outperformed active funds, offering investors low cost products, they can be seen as momentum funds which buy in and hold lots of what has done well recently, and not much of what hasn’t. Which is fine, says Webb, until market conditions change. Conditions are now changing, showing few signs of immediate return. The stock market winners of the last few decades have low interest rates and easy credit to thank. Interest rates have now gone up and supply chain resilience has gained new significance. Webb contends that the winners of tomorrow are not the winners of yesterday and questions the relevance of holding a fund that mostly tracks the latter. Noting that active managers outperformed passive managers for the first time in a long time in 2022, she adds that in periods of financial repression and inflation, it is the stocks that start out cheap that perform well. Accordingly, the big passive players may find the reversal of market momentum makes for a messy future.

Mifid II killed the broker: Can the European Commission resurrect her?

Ricardo Jiménez Hernández for IR Magazine argues that the European Commission’s latest regulatory attempt to revive stock broking post-Mifid II comes too late. The unbundling of research and brokering fees mandated by Mifid II is widely considered to have had negative consequences for brokers, independent analysts and coverage of listed small and mid caps. The landmark 2018 regulation raised challenges for the financial services industry and businesses alike, with brokers and investment banks struggling to attract and retain talent, and listed businesses suffering from reductions in analyst coverage. The European Commission’s proposal to re-bundle research and brokering for small and mid caps is too little, too late according to Jiménez Hernández. In effect, the European Commission’s attempt to fix the damage caused by MIFID II on competition is unlikely to succeed as, according to the author, the market is now dominated by an oligopoly of American investment banks.

305 profit warnings issued in 2022

EY’s latest report finds that 305 profit warnings were issued by UK listed companies in 2022, a number up 50% vs 2021 and representing 18% of all listed companies. The latter was on par with 2008, at the height of the global financial crisis, and rising costs are understood to be the biggest trigger for the warnings. More than a third of companies in the consumer sector posted warnings, with 63% of the latter citing higher food costs and 33% highlighting falling consumer confidence. The analysis also outlines how the cost-of-living squeeze is increasingly being felt across the wider economy, as cost pressures have knock-on effects on supply chains and credit markets. For many management teams, this year will be the first to pose such extensive and complex headwinds. Understanding how to adapt under different conditions is critical for companies, making forecasting and planning a key challenge in 2023.

Welcome to the planet of the APEs – or how AMC addressed the retail shareholders’ non-voting issue

Matt Levine for Bloomberg sings the praises of AMC Entertainment Holdings Inc.’s stock issuance plan. By issuing AMC Preferred Equity (APE) units, Levine suggests that the company has solved the problem of retail non-voting. How? By giving its retail shareholders APE units that have voting rights, without relying on the majority of holders actually casting a vote. The trick? The APE’s depositary firm has committed to vote all shares, including those non voted by their owners, in line with the voting outcome of shares that were voted. AMC is “on the cutting edge of innovation in retail investor relations”, claims Levine, suggesting that the company’s IR success stems from leaning into its status as a meme stock and tailoring its policies to its 80% retail investor shareholder base.

And finally… FTSE100 Annual Reports now average 237 pages long … zzz

According to the Quoted Companies Alliance (QCA), the length of annual reports for UK-listed companies has grown by 46% over the past five years, with the average annual report now reading longer than George Orwell’s Nineteen Eighty-Four. The FT reports that the QCA wants regulators to step-in and review reporting demands to provide guidance both around cost-cutting measures for smaller companies, but also on reporting requirements, laying out what information must be included and what can be disclosed elsewhere. Ashton from the QCA said that, rather than releasing vast data dumps, annual reports should be fair, succinct and insightful. To get there, greater regulatory guidance is needed to “close the book on these never-ending stories”.

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].