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| FCA takes action against pre-flotation trickery – at last | FCA takes action against pre-flotation trickery – at last |
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| What sheltered lives they’ve been leading at the Financial Conduct Authority (FCA). For about two decades now, anybody who follows the flotation, or initial public offering (IPO), scene in London has known the process of bringing a company to the stock market is riddled with obfuscation and conflicts of interest. But it is only now – or, rather, at some point later this year – that the regulator intends to do anything about it. | What sheltered lives they’ve been leading at the Financial Conduct Authority (FCA). For about two decades now, anybody who follows the flotation, or initial public offering (IPO), scene in London has known the process of bringing a company to the stock market is riddled with obfuscation and conflicts of interest. But it is only now – or, rather, at some point later this year – that the regulator intends to do anything about it. |
| One hesitates to call the current IPO set-up a scam because few participants even pretend the process is clean and transparent. During the build-up to an IPO, it is routine for bosses of the newly arriving company to talk only to “connected” research analysts, meaning only those working for banks that are being paid fat fees to promote the listing and find buyers for the shares. Potentially awkward voices can either be invited into the tent, on the understanding that they’ll behave themselves, or they can be excluded and deprived of the chance to ask tricky questions. It is a form of gagging designed to ensure friendly views dominate the debate about a company’s value. | One hesitates to call the current IPO set-up a scam because few participants even pretend the process is clean and transparent. During the build-up to an IPO, it is routine for bosses of the newly arriving company to talk only to “connected” research analysts, meaning only those working for banks that are being paid fat fees to promote the listing and find buyers for the shares. Potentially awkward voices can either be invited into the tent, on the understanding that they’ll behave themselves, or they can be excluded and deprived of the chance to ask tricky questions. It is a form of gagging designed to ensure friendly views dominate the debate about a company’s value. |
| Meanwhile, flotation prospectuses, which detail the company’s financial history and directors’ records, are often published only after the shares have started trading. This is ludicrous, as is the idea that only sophisticated fund managers can be trusted with an early glance during the “investor education” period. The prospectus should be the first document that all would-be investors read, not the last. | Meanwhile, flotation prospectuses, which detail the company’s financial history and directors’ records, are often published only after the shares have started trading. This is ludicrous, as is the idea that only sophisticated fund managers can be trusted with an early glance during the “investor education” period. The prospectus should be the first document that all would-be investors read, not the last. |
| Having spent a year gathering evidence, the FCA has discovered – shock, horror – that some of its suspicions about the risk of bias are well founded. It has heard reports that “corporate financiers’ advisers place significant pressure on analysts to produce favourable research coverage if their bank is to secure a place on the syndicate”, says its consultation paper earnestly. Who could possibly have imagined such skulduggery in the City? | Having spent a year gathering evidence, the FCA has discovered – shock, horror – that some of its suspicions about the risk of bias are well founded. It has heard reports that “corporate financiers’ advisers place significant pressure on analysts to produce favourable research coverage if their bank is to secure a place on the syndicate”, says its consultation paper earnestly. Who could possibly have imagined such skulduggery in the City? |
| Better late than never, the FCA intends to ensure that prospectuses are published earlier and that analysts not working for banks on the IPO ticket get a fair crack at managements. This is presented as a major reform that will help to maintain London’s standing in the financial world. It is nothing of the sort. It is a commonsense action that should have been adopted years ago. | |
| ITV should be able to shrug off fall in ad spend | ITV should be able to shrug off fall in ad spend |
| Nice dividend, shame about the advertising revenues. ITV’s shares rose 4.5% to close at their highest price since last June’s referendum as the broadcaster demonstrated again that it is very good these days at generating cash and distributing the spoils to investors. It is less clear, however, whether its 3% fall in advertising spend – the first since 2009 – was a wobble or the start of a trend. | Nice dividend, shame about the advertising revenues. ITV’s shares rose 4.5% to close at their highest price since last June’s referendum as the broadcaster demonstrated again that it is very good these days at generating cash and distributing the spoils to investors. It is less clear, however, whether its 3% fall in advertising spend – the first since 2009 – was a wobble or the start of a trend. |
| The case for the defence is that commercial television is better equipped than, say, newspapers to resist the pickpockets called Facebook and Google. ITV still delivers mass audiences, which some advertisers cannot live without. Television’s share of the overall advertising market in the UK is still 27.5%, the same as it has been for years. As for upstart broadcasters like Amazon and Netflix, they may provide new competition for eyeballs but they also pay good money for ITV’s content. Thunderbirds goes down a storm on Amazon, apparently. | The case for the defence is that commercial television is better equipped than, say, newspapers to resist the pickpockets called Facebook and Google. ITV still delivers mass audiences, which some advertisers cannot live without. Television’s share of the overall advertising market in the UK is still 27.5%, the same as it has been for years. As for upstart broadcasters like Amazon and Netflix, they may provide new competition for eyeballs but they also pay good money for ITV’s content. Thunderbirds goes down a storm on Amazon, apparently. |
| All the same, it’s jarring to hear ITV still grumbling about “political and economic uncertainty” and offering little prospect of immediate improvement. Housebuilders, for example, sing a jollier song about consumer confidence in the UK. For the first four months of 2017, ITV expects a 6% fall in ad revenues. | All the same, it’s jarring to hear ITV still grumbling about “political and economic uncertainty” and offering little prospect of immediate improvement. Housebuilders, for example, sing a jollier song about consumer confidence in the UK. For the first four months of 2017, ITV expects a 6% fall in ad revenues. |
| One can understand that the priority for supermarkets and branded food companies, which are bracing for a bout of inflation, is to hold down prices in the shops. But, if the blip theory is to be proved correct, ITV needs to show clear signs of improvement on the ad front in the second half of this year. | One can understand that the priority for supermarkets and branded food companies, which are bracing for a bout of inflation, is to hold down prices in the shops. But, if the blip theory is to be proved correct, ITV needs to show clear signs of improvement on the ad front in the second half of this year. |
| The encouraging news for investors, of course, is that ITV isn’t a hostage to advertising like it used to be. The company has been “rebalanced” over the past seven years, as chief executive Adam Crozier always likes to boast, to the point where 53% of total revenues come from sources outside traditional TV spot advertising. For comparison, he inherited a position in the mid-20s. | The encouraging news for investors, of course, is that ITV isn’t a hostage to advertising like it used to be. The company has been “rebalanced” over the past seven years, as chief executive Adam Crozier always likes to boast, to the point where 53% of total revenues come from sources outside traditional TV spot advertising. For comparison, he inherited a position in the mid-20s. |
| The seventh year of a chief executive’s reign is usually a point where outsiders (and insiders, for that matter) stand to wonder how long the boss intends to hang around. Crozier was tight-lipped, as he must be, but the temptation to complete a few more laps of the track must be great. ITV is carrying little debt, can afford to carry on buying independent production houses and, whatever the advertising weather, doesn’t need a strategic rejig. | The seventh year of a chief executive’s reign is usually a point where outsiders (and insiders, for that matter) stand to wonder how long the boss intends to hang around. Crozier was tight-lipped, as he must be, but the temptation to complete a few more laps of the track must be great. ITV is carrying little debt, can afford to carry on buying independent production houses and, whatever the advertising weather, doesn’t need a strategic rejig. |
| Fund manager Terry Smith takes the sunny view | Fund manager Terry Smith takes the sunny view |
| Terry Smith, former City analyst, former broker and now manager of the £10bn Fundsmith fund (disclosure: I am an investor) is off to Mauritius. It’s not for a holiday, you understand. This is business. The Indian Ocean island is a good place to escape the “noise” of the City, he says. The time zone allows one to get ahead of European and US markets. The rule of law applies and the living is easy. He has spent a lot of time there in recent years. Now he’ll spend more. | Terry Smith, former City analyst, former broker and now manager of the £10bn Fundsmith fund (disclosure: I am an investor) is off to Mauritius. It’s not for a holiday, you understand. This is business. The Indian Ocean island is a good place to escape the “noise” of the City, he says. The time zone allows one to get ahead of European and US markets. The rule of law applies and the living is easy. He has spent a lot of time there in recent years. Now he’ll spend more. |
| It’s an unusual move, but why not? There is a rich tradition of successful fund managers, like the late Sir John Templeton in the Bahamas, doing their stuff from sunny places. If, like Smith, you’re at the extreme “buy and hold” end of the investing spectrum, the job involves reading and thinking, the more the better. So why not make yourself physically unavailable to clients? And, if the time zone is crucial, Mauritius is definitely more attractive that the architectural hell that is Dubai. |