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Adjusting your IR for the fact that half of the UK stock market is overseas owned

29/09/2015

Earlier this month the UK’s Office for National Statistics (ONS) published data on the ownership of UK domiciled listed companies. 54% of value is owned by non-UK based institutions and private investors.

Overseas ownership was already accelerating at the time of the Big Bang (1986) as the chart above shows. During the 1990’s it passed 20% of total, which was when many European companies were still dual-listing on NASDAQ and their local European exchange. The steep pace of growth slowed around 2000 but it has continued to increase steadily in the last decade or so, flattening off since 2012.

The Financial Times noted how UK has become much easier for overseas investors to participate in UK share ownership, and of course there has been a general internationalisation of portfolios meaning that UK institutions are also looking overseas which affects their UK weighting.

The London market’s overseas ownership at 54% is higher than the US (16%) and Japan (32%) but then these are larger markets so less easily diluted by foreign ownership.

The read across for UK (and European) CEOs is that you do not need to list in the US to attract US investment. US investors are already here. Listing in the US is more costly both to execute and maintain, and involves higher director liability. We’d only advise it if the business is moving its HQ to the US.

The FT is always quick to pick up on the CEO of a high growth but likely loss-making UK company griping that UK investors don’t understand their business. Not only is this missing the point on their target audience location, it is counter productive. Investors reading this, whether in the UK or US, will generally assume there must be something wrong with the company.

Two action points:

  1. make sure your soundbite to the press says something positive about your business, not something negative about your potential shareholders.
  2. adjust your investor relations efforts to make US investors more comfortable
    • Regular US investor marketing, certainly after each set of results to NYC and Boston.
    • US investors are used to quarterly reporting – it’s not something we necessarily agree with as it encourages short term-ism, but if you report half-yearly do a mid-half visit to NYC perhaps in tandem with a business trip or US investor conference.
    • Most US companies report results within 40 days of the period end. This should be good practise anyway (our favourites are the Finns who race to get their June quarter numbers out in the first week of July before disappearing on their brief summer breaks). Bigger UK companies do report promptly, but smaller ones who report 2-3 months later just confuse US investors – “why does it take you so long to produce your numbers?”.
    • US investors expect guidance – consider how you might give more qualitative current year revenue and possibly profitability guidance.
    • Report clear and consistent-over-time non-IFRS numbers. US investors are used to non-GAAP numbers peppering quarterly results filings and, in conjunction with reported figures, they make it easier to see underlying trends.
    • In your results filings, ensure you concentrate your analysis on the latest reported period not year-to-date. The prior periods were covered in previous results so why repeat them? it just vexes the  investor to have to decode what the latest quarter was. US companies rarely do this – but it seems relatively common in Europe.

Relevant links:

UK office for national statistics: ownership of quoted shares for UK domiciled companies 2014
Financial Times: chart that tells a story

Andrew Griffin spent almost two decades as a technology equity analyst before working in investor relations, corporate development and market intelligence for a UK listed software company. In 2015 he set up Oakhall to help European public and private companies.