Investor Relations Week: Shell Spends ‘Gigantic’ Quarterly Profits on Share Buybacks, Zuckerberg’s Metaverse Hits Investor Reality, and Musk ‘Frees’ Twitter in $44 Billion Takeover
– Shell will buy back $4 billion worth of shares and increase its dividend by 15% after posting another mammoth quarterly profit on the back of high oil and gas prices, reported CNN. The British company posted a net profit of $9.45 billion in the third quarter, more than double the $4.1 billion recorded a year ago. The result was driven by a strong performance from its oil exploration and production business, Shell said.
The company’s shares at one point rose more than 4% in London on Thursday as investors cheered the news. The additional buybacks will bring total stock purchases for the year to $18.5 billion, or approximately 10% of the company’s share capital. The third-quarter performance means Shell reported more than $30 billion in profit for the first nine months of the year, 58% more than it reported for the whole of 2021. It reported posted a record profit of $11.5 billion in the second quarter, when oil prices were above $100 a barrel.
– Meta Platform earnings call quarterly revenue disappointed investors, reported Yahoo finance, with shares down 20% in premarket trading just hours after CEO Mark Zuckerberg announced the outlook. The billionaire sought to justify Meta’s inflated costs to fund his version of virtual reality – the metaverse – as well as the artificial intelligence powering major changes to his social networks and asked investors for patience. Investors, who have already taken the stock down 61% this year, are not buying it yet. But Zuckerberg said he’s confident Meta’s biggest bets in areas like short-form video, enterprise messaging and the metaverse are headed in the right direction.
Meanwhile, Reuters reported that “Wall Street is losing patience” over Meta’s huge and experimental bets on Zuckerberg’s Metaverse project. He added that a Meta shareholder recently raised concerns, calling the company’s investments “oversized and terrifying”, while analysts called Meta’s inability to cut costs as “extremely worrying”. .
– Elon Musk has completed his takeover of Twitter for 44 billion dollars, BBC News reported. Musk’s early investments in Twitter initially escaped public notice. In January, he started buying stock regularly, so by mid-March he had accumulated a 5% stake in the company. In April, Musk was revealed as Twitter’s largest shareholder, and at the end of the month a deal was struck to buy the company for $44 billion. He said he planned to clean up spam accounts and preserve the platform as a place for free speech, but by mid-May Musk – a prolific tweeter – had begun to change his mind about the purchase, citing concerns about the number of fake accounts on the platform was higher than Twitter claimed.
In July, Musk said he no longer wanted to acquire the company. Twitter, however, argued that the billionaire was legally committed to the acquisition and eventually sued to hold him to the deal. In early October, Musk relaunched his plan to buy the company on the condition that legal proceedings are suspended.
– U.S. regulators will force public companies to take back executive incentive compensation if they find material errors in financial statements, The Wall Street Journal (paywall) reported. The The goal is to improve corporate accountability at a time of growing shareholder dissatisfaction with compensation practices. Reporting on an SEC vote held earlier this week to complete the so-called clawback rule, the WSJ reported that all Democrats approved and all Republicans dissented. The document adds that, as required by the Dodd-Frank Act of 2010 to deter accounting fraud and wrongdoing, implementation of the rule has been delayed for years.
The approved rule will broadly apply clawback provisions to public companies, extending a practice that has become widespread in compensation agreements established by corporate boards in recent years. But these voluntary policies sometimes set the bar high for recovering previously awarded compensation and can be difficult to enforce.
– It’s not just UK small and micro caps that have suffered from falling prices this year. There have been similar trends in Europe and the United States, according to Interactive Investor. In a number of jurisdictions, central banks are raising interest rates to combat high and rising inflation, which poses the risk of a recession, with evidence that we are already in one. Mix in high energy prices and the misery and disruption of war in Ukraine and you’ll see why investors are wary.
Faced with these conditions, the market has renounced the risk of small caps because they are sensitive to economic headwinds. But the UK market seems to have had a particularly bad experience this year. Research from analyst firm FTSE Russell shows that of all the factors driving investment returns in the market, the ‘size effect’ (the tendency for small caps to outperform) has completely collapsed in the UK. United between July and September.
Small caps also underperformed in Europe in the third quarter, but the size factor actually contributed positively in the US.
– The temperature (paywall) reported that the DX Group’s largest shareholder has begun to oust the parcel delivery company’s executive chairman, whom it accused of “seriously harming” the business. Gatemore Capital, which owns 20% of DX, said Wednesday it had formally called on the company to call a special meeting to remove Ron Series and replace him with its nominee. Liad Meidar, Gatemore’s managing partner and former non-executive director of DX, said he had privately urged Series to pull out and had the support of other shareholders, including Schroders, with 5.7%, and Lloyd Dunn, the company’s former CEO, who has 10.9 percent. “I regret that we didn’t make this decision sooner,” Meidar said.
–The Fed is losing billions of dollars by wiping out the profits that funded the spending. Central banks around the world are paying more interest and governments may need to plug holes in central banks, says Bloomberg (paywall). Profits and losses aren’t usually seen as a consideration for central banks, but the rapidly rising red ink at the Fed and many of its peers risks becoming more than just an accounting quirk. The bond market is suffering its worst selloff in a generation, triggered by high inflation and aggressive interest rate hikes implemented by central banks. Falling bond prices, in turn, mean paper losses on the massive holdings the Fed and others have accumulated in their bailout efforts in recent years. Rate hikes also mean that central banks pay more interest on reserves than commercial banks store with them.
– As the Bank of England prepares for a crucial meeting next week to decide interest rates, ‘it has been left in the dark’, reports The Guardian. The central bank will have to work out how much to raise interest rates without receiving any guidance from the government on 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 Nov. 3 to decide how much higher the cost of borrowing is needed to combat an inflation rate that topped double digits in September.
Moving the fall declaration date from Halloween to Nov. 17 means the central bank won’t know how far the Treasury will cut government spending. Fears that its base rate is on track to jump more than a percentage point above its current level of 2.25% have subsided and a hike of 0.75 percentage point is now expected. But that calm could prove temporary, according to the report, if financial traders begin to expect Hunt to be more generous with the budget than his early comments suggested.
– Activist investor Nelson Peltz, a member of the Unilever board, has approached former CEOs of consumer goods companies as candidates for the top job at soap maker Dove, according to Reuters. London-based Unilever is seeking a successor to CEO Alan Jope, who last month said he would retire at the end of 2023.
Along with other consumer goods companies, Unilever has faced rising labor, freight and ingredient costs. It tried to preserve its margins by increasing the prices it charges for its 400 brands, but saw them shrink. Its shares underperformed consumer staples and European discretionary indices under Jope’s tenure, which began in January 2019. Unilever was also marred by a legal challenge to its bestseller Ben & Jerry’s to block the sale of its ice cream business in Israel, as well as failed attempts to buy GSK’s consumer healthcare business GSK.L.
– 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 measures proposed by the Monetary Authority of Singapore (MAS) to protect retail consumers, in one of two consultation papers released this week.
Singapore’s central bank has repeatedly warned the public against investing in cryptocurrencies. Earlier this year, it banned cryptocurrency trading service providers from taking 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,” MAS said. But he noted that because cryptocurrencies play a supporting role in the broader digital asset ecosystem, it “would not be possible to ban them.”