IR Weekly – Monday 1st June

Welcome to FTI Consulting’s IR Weekly newsletter.

In this week’s edition, we explore the question of whether cash makes a company strong, or if only strong companies can access cash. Next, we look at declining rates of shareholder activism, before assessing whether traditional IPO “roadshows” will fall victim to post-coronavirus digitisation. We continue by drawing attention to the accusations of financial impropriety levelled against online retailer Boohoo, in addition to reviewing the changing role of ESG in earnings calls. Finally, we evaluate the future of the City lunch.

Note: the FCA has released its latest Primary Markets Bulletin which is recommended reading for all IR, finance and company secretarial staff. 

This week’s news

What came first?

Reuters Breakingviews asked the perennial question: “does cash make a company strong, or do only strong companies get the cash”? The month of May saw a record number of stock issuances, with 135 companies raising $69bn globally, according to Deologic. In the UK IWG plc (the holding company for Regus) launched a £315m accelerated fundraising to go after new opportunities, with CEO Mark Dixon acting as cornerstone for £91m, while FTSE 100 Flutter Entertainment raised £813m. As lockdown measures persist and revenues decrease yet further, it is likely that the “investor stamp of approval” will be given to the companies that already appear to be emerging from the crisis as “winners”.

Passivism is the new activism

This week, Financial News reported that the tools traditionally at the activist investors’ disposal – including campaigning for cash returns, management changes, and mergers and acquisitions – are no longer available. According to investment bank Lazard, global shareholder activism declined sharply following the introduction of lockdown measures around the world: in February, a weekly average of $2.8bn in capital was deployed by activist investors, compared to just $300m in March. Meanwhile, Reuters Breakingviews reported that the number of activist campaigns initiated in the first three months of 2020 fell by a quarter compared to the same period last year, according to research from Activist Insight.

End of the roadshow?

Following a series of successful lockdown listings, the traditional IPO roadshow could prove to be the next investor relations practice to fall victim to coronavirus. Financial Times reported that the ease of engaging with investors virtually raised questions about the need for strenuous and costly physical roadshows in the future. Andreas Bernstorff, head of ECM at BNP Paribas, stated: “You don’t get to shake someone’s hand and look them in the eye, but you do get to speak to a lot more people”. Similarly, engaging remotely allows for more targeted meetings. In the case of Pexip, a Norwegian videoconferencing company that went public in May, every one-to-one video session conducted by its CEO eventually led to investment. Detractors to this view note many of those companies that successfully IPO’d had already conducted significant pre-marketing ahead of the period, or as was the case with Pexip, were actively demonstrating their product to investors.

Boohoo cries foul

The online retailer, Boohoo, made headlines on Wednesday, as the business pages of The Times, The Telegraph, and others reported that Boohoo was under the attack of the ‘Dark Destroyer’, the nickname for Shadow Falls – a hedge fund led by Matthew Earl. Shadow Falls issued a 54-page report on Boohoo, which included accusations that the company had been misleading investors about its free cashflow for several years, including by £32.2 million in the past financial year alone. In response, Boohoo’s spokesperson stated that “Pretty Little Thing’s profits were genuinely stated with all costs allocated on a wholly independent basis.” The attack follows several high-profile cases alleging financial impropriety, including Muddy Waters Research targeting NMC Health.

ESG earnings calls 

Financial Times reported that the role of ESG in earnings calls could be changing, according to a paper by Kevin Eckerle and Tensie Whelan, of NYU Stern’s Center for Sustainable Business, and Brian Tomlinson, a research director with Chief Executives for Corporate Purpose (CECP). Their research shows that companies that publish long-term ESG plans on a yearly basis, and provide updates on these every year, create an environment of accountability which in turn feeds into long-term value creation. The authors juxtapose this with the short-termism of quarterly reporting, and propose that a long term plan with regular updates provides both a platform for sustainable business, in addition to a structure that suits the “investor’s biorhythm”. Elsewhere the FT notes research which shows that ESG investor strategies exhibit a very significant natural bias against companies with employees.

And finally…

Lucrative City lunches, long the heart of every healthy client relationship, are feared to be a dying tradition. This week, Financial Times reported that restaurateurs believe that the coronavirus crisis will heavily impact the nature of their industry, for an indefinite period, as most of their regular customers do not plan to come back into the office before September. Most restaurants in the City and Mayfair relied on corporate clients for 70% of their lunchtime clientele.

Upcoming conferences

Chemicals & Agriculture Conference, Credit Suisse (virtual) (02 June)

Global Industrials and Transportation Conference, UBS (virtual) (02-03 June)

Healthcare Conference, Jefferies (virtual) (02-04 June)

European Materials Conference, J.P.Morgan (virtual) (08 June)

Global Industrials & Materials Conference, Deutsche Bank (virtual) (08-09 June)