Listed Equity Bulletin 18 May 2020

From the Senior Partner

There is an overriding message now coming back from the ‘buyside’ – “keep communicating”. Whilst some companies may retort “but what do we have to say?” we believe the answer is typically more than you think.

Most ‘reasonable’ followers in the equity market are not going to expect companies to provide comprehensive 2020 guidance but any further insights into how the operating environment is unfolding and what the implications might be, will help and will potentially reduce share price volatility. A number of approaches to increasing visibility are now emerging (including a new definition of adjusted earnings – EBITDAC) and we discuss these below.

The features of this Bulletin to highlight in maintaining the investor dialogue are:

  • What to do next in investor communications – helping market visibility (page 1.)
  • ESG – Actions speak louder than words (page 3.)
  • Remuneration as a Governance issue – areas to focus on (page 4.)
  • From the Fund Managers’ Desk – identifying and accommodating the winners (page 5.)
  • From the Sales Desk – how brokers are responding to the lockdown (page 5.)
  • Markets – a mismatch between sentiment and fundamentals? (page 6.)
  • What is happening in France and Germany? (page 9.)

As always, please do call us if you would like to discuss any of the points raised in more detail – our individual contact details are at the end of this note.

[Tim Huddart is a Senior Partner and founder of h2glenfern and was previously Head of EMEA Research for Merrill Lynch].


What next in investor communications – assisting Market visibility

After several weeks of lockdown, a framework for the communication of Covid-19-related implications to investors is starting to emerge:

  • The Initial Response

With no clarity on the timing of the lockdown and few details on any form of government concessions/support, companies initially responded with ‘headline’ measures to preserve cash, reduce costs and limit the downside. Predominantly this involved dividend cuts, remuneration adjustments and drawdown of existing credit facilities, announced as a series of ‘individual’ measures. With the opportunity over recent weeks to assess the situation in more detail, we see a pattern with 3 particular features:

  1. A more integrated approach looking at the range of levers available to maintain revenue, reduce and subsidise costs and preserve cash. These have been reported in a more holistic fashion.
  2. Greater scenario analysis. Several companies are offering ‘frameworks’ to provide an insight into the robustness of the business; effectively creating a ‘base’ scenario from which investors can then draw their own conclusions.
  3. A far greater consideration of ESG factors as part of the overall response as ‘social’ issues have really sprung to prominence; how is the wider community of stakeholders being recognised and addressed? This is a real test of the extent to which companies are operating in line with their stated values.
  • The Exit Strategy

Governments are finding that communicating the exit process of the Covid-19 lockdown is more challenging than communicating the entry process. Companies face similar challenges in terms of both determining the exit route and, specifically in the case of listed companies, communicating the likely implications. There are multiple issues and individual circumstances will clearly differ but essentially, we would group them under 2 headings:

  • Internal factors (such as how much capacity should be re-introduced and what is the likely take-up of that capacity?)
  • External factors (the implications of regulatory requirements on customer interactions and costs)

Inevitably, the next question from investors to individual companies will be “how are you going to re-start your business?” The answer will be subject to the Government’s plans for individual sectors of the economy, age bands, social distancing requirements etc. and this will be more of a strategic than a guidance discussion for financial modelling. But the situation will be dynamic and as soon as any Government initiatives are announced, companies will need to have a response. We would recommend that the next round of communications should seek to encompass four key factors and our suggested framework is as follows:

Table 1. Addressing the likely factors for financial performance


Whilst for most companies too many uncertainties remain to provide any definitive guidance, as exit strategies begin to emerge the investment community will seek to gain an increasing ‘feel’ of the implications for financial performance. We strongly recommend providing some form of scenario analysis encapsulating the relevant variables as outlined in the table below. It may also be useful at this stage to point to relevant industry data sources showing how addressable markets are trending.

Table 2. Scenario Analysis Framework


Finally, we believe it is vital to continue to make specific references to ESG matters (specifically ‘Social’) to underline how stated values are being applied to all stakeholders.

  • Re-setting the Investment Proposition

The ultimate question to be posed by investors and commentators is what ‘type’ of investment proposition will you represent coming out of the Covid-19 situation and how might that differ from what you represented before? This is not just about forecasts but investment characteristics, and potentially strategy. Lufthansa, for example, has already stated that it may take several years for passenger volumes to recover and is looking to close its Germanwings operation and reduce its overall fleet. So, the future ‘shape’ of Lufthansa will be different. More recently, a similar message is emerging from British Airways.

This stage of communication may benefit from a capital markets event to re-launch the investment proposition, particularly if strategic changes have been implemented. However, even where the strategy is broadly unchanged time scales and targets may have shifted and investors need to be informed.

After several months of exceptional activity and a fundamental but varying shift in the trading backdrop, it will be necessary to help investors to ‘take stock’ and move towards rebuilding an ‘appropriate’ consensus. The ‘rising tide’ as restrictions are lifted and economic activity re-bounds, will generate differing circumstances for each company. Investors will need to understand those circumstances and begin to quantify them as soon as possible, in order to identify fair value.

[Clive Anderson is a Senior Partner at h2glenfern and was previously an equity analyst at New Smith Capital and Merrill Lynch].


ESG – Actions speak louder than words


While the climate agenda has undoubtedly taken a back seat of late, now would not be the time to re-direct medium term resources away from any ongoing environmental initiatives. Although the historically low oil price is no longer pushing the financial case for renewables, the memories of pollution free cities and fresh seawater should only serve to increase the momentum for more permanent behavioural changes to reduce our impact on the planet. This issue remains too big and too important to be downgraded.


It has now become the norm for almost every RNS update to include some comments on health and safety. In many cases this is simply a generic sentence that looks like it has been cut and pasted many times. To be genuinely authentic and deliver a clear message regarding the culture of the organisation this really needs to be backed up with tangible examples of actions; topping up furloughed staff to 100% of salary, extending payment terms to vulnerable customers, diverting facilities to produce protective clothing or ventilators etc. Actions speak louder than words.


Finally, from a governance perspective the agenda is moving from pay to AGMs. Most of them are hastily being re-arranged to take place online, however some companies are taking the opportunity to conduct what are effectively closed meetings, with questions only being permitted ahead of time and most answers published after the event on the company’s website. We would suggest that companies make a genuine effort to recreate the open environment of a ‘live’ meeting, and answer investor’s questions in the moment. As we have said before in this column, being honest and transparent, and being seen to be, is guaranteed to engender trust in difficult times. This trust then tends to perpetuate when conditions return to normal.

[John Pickard is a partner at h2glenfern and was previously CIO of Martin Currie and European Head of Equities at UBS Asset Management].


Remuneration as a Governance Issue – areas to focus on

The flow of announcements setting out steps on executive and board remuneration has slowed although we know many companies have made cuts that have not been announced. Salary reductions have been implemented for either a specified period, such as to the end of June or the period of any furlough, or for an indefinite period. Either way, many companies are now only a few weeks away from having to make further decisions on senior team salaries which may be more challenging and complex than initial decisions taken at the outset of the crisis.

Boards should demonstrate no hesitation in taking decisions on remuneration along with the other measures they are implementing, such as deferring capital expenditure, taking advantage of government support, or suspending dividends. Companies also need to demonstrate empathy with the broader impacts of the crisis on society. Actions taken or not taken will be disclosed with absolute transparency in future annual reports.

The current situation provides an opportunity for companies to build investor confidence in their governance. Acting early and decisively will build confidence and goodwill, providing a more positive backdrop for future conversations with shareholders on these matters. Businesses performing more robustly face a different conundrum, balancing the honouring of previous commitments and forward expectations, with reflecting the general environment and an uncertain outlook. Recent announcements have given more detail on annual bonuses. Where companies are impacted by Covid-19, the cancellation of in year bonuses may be largely an administrative step as targets are likely to be missed. Where companies are withdrawing market guidance, the most obvious step is at least to postpone decisions on any forward bonus.

Long term incentives are normally legally binding structures with limited cash cost. Where performance targets have been met and awards are due to vest shortly, interference would be highly controversial.  Growth companies, where remuneration is tilted towards share incentives, face particular difficulties. Cutting salaries will be more consequential for individuals whilst a slower growth environment may have a major impact on the retention and motivation effect of outstanding share awards.

[Michael Ansell is a partner at h2glenfern and runs the Remuneration Advisory team].


From the Fund Manager’s Desk

As with every major crisis, the first downdraught in the market is all about the big picture; certain sectors outperform others, likewise investment styles. So far, the major determinants in the COVID-19 crisis have been whether you were long or short oil, consumer staples, financials, pharmaceuticals, tech, transport, consumer discretionary etc. and whether you operated with a growth or value style (the former dominating). The style dispersions have far outweighed any real influence from stock picking despite massive volatility in the underlying shares. However, as things play out there will be further corporate stress and bankruptcies, and although most of them will be confined to the at-risk sectors, they will focus on the poorly capitalised and poorly positioned.

Despite active managers delivering mixed performance in the very short term, it is during the next phase that they should be able to add significant value, as outcomes become clearer. The survivors and beneficiaries and those who have burnished their reputation during this period will start to pull away from the pack. Companies that communicate effectively through what we have described as stage 3 and stage 4 above will make it easier for fund managers to pick them as winners.

With most managers running relatively fully invested portfolios, there have not been waves of new money entering the market in the short-term, so most early activity is likely to have been intra portfolio. However, as confidence does begin to return, it is possible that new cash being invested will more than likely be targeted at active rather than passive investors, so standing out from the crowd (for the right reasons) is to be encouraged. Buying a passive fund right now will almost guarantee you a front row seat to watch some of your holdings go bust….

[John Pickard is a partner at h2glenfern and was previously CIO of Martin Currie and European Head of Equities at UBS Asset Management].


From the Sales Desk

Brokering under Covid-19

Contact by salespeople, analysts and traders with their clients, the asset managers, has increased sharply since the beginning of the year and since the start of the crisis in Europe in mid-March especially.  Records of total interactions by the sell side indicate volume increases of 30% to 50% year-on-year in January-April.  The last six weeks to the end of April were the busiest for some since before MiFID II was introduced.  Examples include an analyst making 2x-3x more calls than normal and 170 clients attending a conference call arranged by a broker with a large UK corporate’s IR department.

Corporate access under Covid-19

Following the Regulators’ request in March that listed companies observe a temporary moratorium on publishing preliminary financial statements, the quantity of communication with companies has unquestionably increased but the quality of communication is reported to have been mixed. Most companies have withdrawn any future guidance and brokers report that they are providing less detailed input to their clients but on a higher frequency, that some fund managers have told us they find useful.

In terms of the mode of communication, it is reported that management have been harder to contact than normal and the sell side has conducted more communications with IR.  Companies are willing to conduct video and audio conference calls with investors and even virtual NDRs (non-deal roadshows). The success of virtual industry or regional conferences may be fleeting, useful only in the Covid-19 moment, as fund managers and brokers have told us that the value of conferences is meeting peers, company management and industry specialists in person. Once again it is clear that remote contact is fine for maintaining contact but poor for building a relationship.

There have also been regional differences in corporate access. European companies have been good at maintaining contact with European investors and brokers but there is little evidence of their contact with investors in other regions.

What next?

In terms of costs, the Covid-19 experience has shown that a certain amount of corporate access can be very effectively conducted remotely but equally the view is that building new relationships must be done in person! A further consequence of the circumstances is how the pressure on both sell and buy side has exposed where each broker adds value or fails to do so. Market relationships may well be different in future.

[Tom Chetwood is a Partner at h2glenfern and was previously head of equity sales teams at Cazenove, Macquarie and BNP Paribas].



Since our last Bulletin, the global equity markets have sent a clear signal in an attempt to answer the big question: what happens next? Given the quantum of the largest global money printing exercise the world has ever seen, the inflationary/deflationary debate rages amongst economists. For their part investors have sent a clear signal that as the global number of new Covid-19 cases fall, and the great unlock continues, in the short term at least, the outcome of the central bank’s actions is likely to create a V-shaped recovery that continues to drive asset prices higher.

The deep mid-March oversold conditions that precipitated the current rally have now reversed, the extreme volatility levels have dissipated, and volume levels have returned to normal.

From its January peak to its March trough, the FTSE All-Share index is now hovering around the technical 38% Fibonacci retracement upside resistance level of 3312, which has now been tested three times.

[Source: Bloomberg – 18th May]

As far as the big sector movements are concerned, the table below shows the 1-month relative winners and losers and to help put those moves into perspective I have added the 3 month moves for reference.

Below I have updated the charts on some of the key investor sentiment indices we follow;

1 Year Chart – CBOE VIX Index

Continues to fall from the extraordinary record setting panic levels witnessed in mid-March.

[Source: Bloomberg – 17th May]


CNN Fear and Greed Index

Now showing a normal reading of 49 a substantial bounce from the extreme fear reading of 2 in the crisis peak in mid-March.

[Source: – 18th May]

Finally, I think it’s interesting to look at the fund flows for US equity and money market funds in the US since the start of the year as a proxy for the broader market. Since the beginning of the year, a total of $89b has left equity funds with actively managed funds bearing the brunt of the selling while $1.1 tr has flowed into US money market funds (cash or near cash) in the same period. There are now record levels of institutional and retail cash sitting on the side-lines.

US Equity and Money Market Fund Flows in 2020

[James Blackburn is a partner at h2glenfern and was previously Head of Equity Sales and Trading for Merrill Lynch in New York].


What is happening in Continental Europe?


As the country carefully emerges from the lockdown, the damage the pandemic has caused the domestic economy is better assessed with an estimated 5.8% GDP contraction in Q1. Market estimates suggest that 2020 EPS could be down by approximately 30% across the board in a context where all companies have dropped their guidance and analysts have little clue on the profile and timing of the recovery.

Volatility remains driven by the Covid-19 news flow (casualties and potential for medical treatments) with little sensitivity to corporate announcements that started to emerge in the wake of Q1 trading statements.

Those trading statements offered corporates an opportunity to update investors on the consequences of the pandemic. But little more has been added to the initial communication which occurred at the early stage of the confinement. At that time, companies insisted on their commitment to making sure their employees and other stake holders would be kept safe, preserving cash, and increasing liquidity. Even before the Q1 trading statement season started to kick-in, guidance had been removed, dividends cut, cancelled, or suspended, executive pay reduced, and corresponding savings often offered to charities.

Companies are generally not prepared to share stress test scenarios or even framework analysis designed to help investors figure out their own exit scenarios.

Besides some ad-hoc communication and anecdotical evidence, investors are unlikely to know much more about exit scenarios before the time of AGMs and more likely at the time of half-year results.

[Rémy Dumoulin is a partner of h2glenfern based in Paris and was previously Head of Investor Relations at Spie in Paris].



We are in the middle of the corporate reporting season and many of the DAX companies have already announced that they are postponing their AGMs. Some have set a new date and confirmed they will hold “virtual AGMs”, whilst others have not even rescheduled yet. Many corporates have not commented on dividend payments and are planning to decide closer to the AGM date, whilst some have announced very early that they will be paying dividends for 2019.

Six out of the DAX 30 companies have held virtual AGMs as of the week ending 15th May. In all cases, shareholders were asked to submit questions two days in advance of the AGM at the latest and there was no possibility for questions to be asked during the event. Whilst the companies highlight the benefits of virtual AGMs (reduced costs, shorter duration), investors criticise the curtailment of shareholder rights with no ability of direct debate and interaction with the board during the AGM. In addition to the request to submit questions in advance, Deutsche Bank has announced that their virtual AGM (to be held on 20th May) will offer its shareholders the opportunity to access a forum to submit statements regarding the agenda. These had to be submitted until 17th May and will be subsequently published on the bank’s website.

Trading updates which have been announced until and including 15th May have shown a real reluctance to update any sort of guidance or scenario analysis for the full year. As Q2 progresses many corporates expect to be able to provide investors with an updated forecast factoring in the effects of the Corona crisis and allowing for more detailed forecasts for the full year and ahead.

[Julia Kavvadias is a partner of h2glenfern based in Dusseldorf and was previously an investment banker with Lazard and Lincoln International in London and Frankfurt].


Contact Details

Tim Huddart ( 07775 822711

Clive Anderson ( 07775 822737

John Pickard ( 07552 461451

James Blackburn ( 07887 844864

Michael Ansell ( 07540 836873

Tom Chetwood ( 07921 455820

Michael Wills ( 07885 406087

Deirdre Bellingan ( 07824 171098

Natalie Crisp ( 07415 203194

Julia Kavvadias ( +49 1726874918

Rémy Dumoulin ( +33 621061018