IR Weekly – Monday 27th April

Welcome to FTI Consulting’s Investor Relations Weekly Newsletter

This week, we open with the case for private investors amid a flurry of equity raisings, before discussing whether active management has missed its moment in the recent market crash. Next, we assess the short-term outlook for markets, and report on French regulators taking aim at Elliott and the activists. We continue by reporting on a survey that suggests CFOs are starting to understand how they should integrate Covid-19 considerations into financial reporting. Finally, we highlight the buzz on social media at the chance to look into CEO homes during remote earnings calls.

This week’s news

Emergency rules disadvantage private investors

City grandees including the founders of Hargreaves Lansdown and AJ Bell, signed an open letter to UK plc chiefs arguing that private investors are losing out in equity raisings, according to The Times. The letter argues that private investors, who own over 10% of the FTSE100, are being disadvantaged in the wave of recent recapitalisations following the relaxation of pre-emption rules and companies issuing equity at deep discounts. The call to action has since been amplified by Merryn Somerset Webb in the Financial Times and by John Hughman, Editor at Investors Chronicle. The letter was co-ordinated by PrimaryBid, supported by FTI, and is available at www.allinvestorsmatter.co.uk 

Did active funds pass the test?

A few weeks ago, we reported that the ongoing market uncertainty presented an opportunity for active fund managers to prove their worth against their increasingly popular passive counterparts. However, according to the Financial Times US equity funds underperformed equivalent passive funds by 1.44 percentage points, net of fees, in the first quarter of 2020. Similar trends were seen in most funds, with only European funds keeping pace with their passive counterparts. After years of active managers arguing their higher fees would be justified in a downturn, some investment managers are now questioning the wisdom of that idea.

Early signs of the downturn to come

According to Marketwatch, the S&P 500 index is set to suffer the worst quarter for earnings since the 2008 financial crisis, despite results due this week barely registering the impact of COVID-19. A combination of the worst-hit industries not reporting in the near future and the implementation of lockdowns coming toward the end of the quarter means that the COVID impact on the market hasn’t been well captured and the first quarter’s results only foreshadow a much bleaker second quarter. It’s not all bad news though, as results from Netflix have got the market excited about potential resilience in the technology sector.

Activist falls foul of French regulator

The Autorité des Marchés Financiers has levied one of the largest fines in its history against activist hedge fund Elliott Management, for inaccurate and late reporting relating to a tender offer in 2015 by XPO logistics for Norbert Dentressangle. The Financial Times reports that the €20m penalty also takes into account obstruction of the AMF’s investigation by Elliott’s UK team. This is not the first time the regulator has taken action against Elliott, issuing an €8m fine for insider trading in 2014, and comes amid a flurry of investor activism in France that has led to the Government seeking to thwart activists looking to interfere with French companies.

Getting to grips with virus reporting

IR Magazine reported that after a period of uncertainty, company CFOs are starting to gain clarity on how to integrate Covid-19 considerations into their financial reporting. A survey of CFOs conducted by PwC showed that just 13% are uncertain how and where to report around Covid-19, compared with 24% just two weeks ago. With the impact of the outbreak so universal it’s hardly surprising that 94% of CFOs plan to include discussion of Covid-19 in upcoming reporting. Many companies have chosen to revise or cancel financial forecasts, while also reining in buyback programmes and dividends. In the week ending Friday 24th April, 23 companies across the FTSE 350 reviewed their dividend policies, 21 companies furloughed employees and 18 executive teams took pay cuts. Full document available on request from FTI.

And finally… Earnings calls give a sneak peek into a CEO’s home

With US earnings season well underway, parts of Twitter are giddy with excitement at the prospect of remote earnings calls, often held via video-conference, letting viewers into the otherwise secretive world of CEO homes. It seems company chiefs should be careful with their choice of backdrop and interior design lest social media pounces.