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Oct 28, 2022

The week in investor relations: Shell spends ‘gigantic’ quarterly profit on share buybacks, Zuckerberg’s metaverse hits investor reality and Musk ‘frees’ Twitter in $44 bn takeover

Our pick of the IR stories you might have missed this week

– Shell will buy back $4 bn worth of shares and increase its dividend by 15 percent after posting another gigantic quarterly profit thanks to strong oil and gas prices, reported CNN. The UK company posted net income of $9.45 bn in the third quarter, more than double the $4.1 bn it recorded a year ago. The result was driven by a strong performance in its oil exploration and production business, Shell said.

The company’s stock at one point rallied more than 4 percent in London on Thursday as investors cheered the news. The additional buybacks will increase total share purchases for the year to $18.5 bn, around 10 percent of the company’s share capital. The third-quarter performance means Shell has reported profit of more than $30 bn for the first nine months of the year – 58 percent more than it recorded for the whole of 2021. It posted a record $11.5 bn profit in the second quarter, when oil prices were above $100 a barrel.

– Meta Platform’s earnings call on quarterly revenues disappointed investors, reported Yahoo Finance, with shares down 20 percent in premarket trading just hours after CEO Mark Zuckerberg delivered the outlook. The billionaire sought to justify Meta’s ballooning costs to fund its version of virtual reality – the metaverse – as well as the artificial intelligence fueling major changes to its social networks and asked investors for patience. Investors, who have already sent the stock down 61 percent this year, so far aren’t buying it. But Zuckerberg said he was confident that Meta’s largest bets in areas such as short-form video, business messaging and the metaverse were headed in the right direction.

Meanwhile, Reuters reported that ‘Wall Street is losing patience’ over Meta’s enormous and experimental bets on Zuckerberg’s metaverse project. It added that one Meta shareholder recently voiced concerns, calling the company’s investments ‘super-sized and terrifying’, while analysts defined Meta’s inability to cut costs as ‘extremely disturbing’.

– Elon Musk completed his $44 bn takeover of Twitter, BBC News reported. Musk’s early investments in Twitter initially escaped public attention. In January, he began making regular purchases of shares, so that by mid-March he had accumulated a 5 percent stake in the firm. In April, Musk was revealed as Twitter’s largest shareholder and by, the end of the month, a deal was reached to buy the company for $44 bn. He said he planned to clean up spam accounts and preserve the platform as a venue for free speech but, by mid-May, Musk – a prolific tweeter – had begun changing his mind about the purchase, citing concerns that the number of fake accounts on the platform was higher than Twitter claimed.

In July, Musk said he no longer wished to acquire the company. Twitter, however, argued the billionaire was legally committed to the acquisition and eventually filed a lawsuit to hold him to the deal. In early October, Musk revived his takeover plans for the company on condition that legal proceedings were paused.

– US regulators will make public companies take back executives’ incentive pay if they find significant errors in financial statements, The Wall Street Journal (paywall) reported. The aim is to improve corporate accountability at a time of rising shareholder discontent over pay practices. Reporting on an SEC vote earlier this week held to complete the so-called clawback rule, the WSJ reported that all Democrats approved and all Republicans dissented. The paper added that as required by the 2010 Dodd-Frank Act to discourage fraud and accounting mischief, the rule’s implementation has been delayed for years.

The approved rule will apply clawback provisions broadly to public companies, extending a practice that has become widespread in compensation agreements set by corporate boards in recent years. But those voluntary policies sometimes set a high bar for recouping previously awarded compensation and can be difficult to enforce.

– It isn’t just UK small and micro-cap shares that have suffered from plummeting prices this year. There have been similar trends across Europe and the US, according to Interactive Investor. In a number of territories, central banks are raising interest rates to fight high and rising inflation, which brings the risk of recession, with some evidence that we’re already in one. Mix in high energy prices and the misery and disruption of war in Ukraine and it’s clear why investors are feeling wary.

Faced with these conditions, the market went ‘risk off’ small caps because they are sensitive to economic headwinds. But the UK market does seem to have had a particularly bad experience this year. Research by analysis firm FTSE Russell shows that, of all the factors that drive investment returns in the market, the ‘size effect’ (the tendency for small caps to outperform) completely collapsed in the UK between July and September.

Small caps also underperformed in Europe during the third quarter, but the size factor was actually a positive contributor in the US.

The Times (paywall) reported that DX Group’s biggest shareholder started moves to unseat the parcel delivery company’s executive chairman, who it has accused of ‘severely harming’ the company. Gatemore Capital, which owns 20 percent of DX, said on Wednesday it had formally called on the company to convene an extraordinary meeting to remove Ron Series and replace him with its nominee. Liad Meidar, Gatemore’s managing partner and a former non-executive director at DX, said he had privately urged Series to step down and had the support of other shareholders, including Schroders, with 5.7 percent, and Lloyd Dunn, the company’s former CEO, who has 10.9 percent. ‘I regret we did not take this move earlier,’ said Meidar.

–The Fed is losing billions of dollars wiping out profits that funded spending. Central banks around the world pay more in interest and governments may need to make up holes at central banks, according to a Bloomberg (paywall) report. Profits and losses aren’t usually thought of as a consideration for central banks, but rapidly mounting red ink at the Fed and many of its peers risks becoming more than just an accounting oddity. The bond market is enduring its worst sell-off in a generation, triggered by high inflation and the aggressive interest-rate hikes that central banks are implementing. Falling bond prices, in turn, mean paper losses on the massive holdings the Fed and others accumulated during their rescue efforts in recent years. Rate hikes also involve central banks paying out more interest on the reserves that commercial banks park with them.

– As the Bank of England gets ready for a crucial meeting next week to decide on interest rates, ‘it has been left in the dark,’ reported The Guardian. The central bank will have to consider how much to raise interest rates without having received any guidance from the government about its tax and spending policies, after new UK chancellor Jeremy Hunt pushed back the date for this year’s autumn statement. Bank policymakers will meet on November 3 to decide the increase in the cost of borrowing required to tackle a rate of inflation that climbed above 10 percent in September.

Shifting the date of the autumn statement from Halloween to November 17 means the central bank will be left in the dark about how far the Treasury will squeeze public spending. Fears that its base rate was on course to jump by more than 1 percentage point above its current level of 2.25 percent have calmed and a rise of 0.75 percentage points is now being forecast. But this calm may prove temporary, said the report, if financial traders start expecting Hunt to be more generous in the budget than his first comments gave them reason to believe.

– Activist investor Nelson Peltz, a board member at Unilever, approached former CEOs of consumer goods companies as candidates for the top job at the Dove soap-maker, according to Reuters. London-based Unilever is seeking a successor to CEO Alan Jope, who said last month he would retire at the end of 2023.

Along with other consumer goods companies, Unilever has faced a surge in labor, freight and ingredients costs. It has tried preserving margins by hiking the prices it charges for its 400 brands but has seen them shrink. Its shares have underperformed European consumer staples and discretionary indices under Jope’s tenure, which began in January 2019. Unilever has also been scarred by a legal challenge from its top-selling Ben & Jerry’s to block the sale of its ice cream business in Israel, as well as by failed attempts to buy GSK’s GSK.L consumer healthcare business.

– In crypto news, retail investors in Singapore may have to go through a risk-awareness assessment before being allowed to trade cryptocurrencies, reported CNA. They will also not be able to use credit cards or any form of borrowing to trade cryptocurrencies. These are among the measures proposed by the Monetary Authority of Singapore (MAS) to protect retail consumers, in one of two consultation papers published this week.

The Singapore central bank has repeatedly warned the public against investing in cryptocurrencies. Earlier this year, it prohibited cryptocurrency trading-service providers from taking up public advertisements and engaging third parties like social media influencers. Trading in cryptocurrencies, or digital payment tokens, is ‘highly risky and not suitable for the general public,’ the MAS said. But it noted that as cryptocurrencies play a supporting role in the broader digital asset ecosystem, it ‘would not be feasible to ban them’.