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The Notebook: Ian Whittaker on the City’s listing problem

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An ex-CFO of a FTSE 100 company once said to me “I love seeing US investors because they recognise the role of the capital markets is to provide capital to grow.”

“For UK investors, it is all about capital preservation and the dividends,” they continued.

Capital growth and capital preservation: two phrases, one word difference. However, if you want an explanation why CRH and ARM are listing elsewhere, look to that phrase.

A company spending wisely on investment will drive higher growth and should see a higher valuation. That is not rocket science and most (good) managements recognise this. It does not mean investment and returns are mutually exclusive (look at the tech companies, at least until recently) but, where there is a choice, the former is more optimal.

Yet, in my twenty-plus years as a media and tech equities analyst, many UK managements worried about investors’ reaction if they did this. There are exceptions: Sky was an excellent example of one who didn’t and was rewarded with a high acquisition multiple. But too often, investors seemed to have a natural scepticism money would be spent wisely.

It therefore should come as no surprise many firms decide not to list in London. Yes, US investors do not always get it right nor are UK investors always wrong to be sceptical. However, I can see why managements
go elsewhere for listings. As usual, this is not investment advice.

SUNAK’S IN WITH A SHOT

One of my sidelines is betting on political events. Keir Starmer is odds-on favourite to be the next PM but I am not so sure. He has not sealed the deal with the public as Tony Blair did and Rishi Sunak has started to enjoy some noticeable successes, such as the Northern Ireland agreement with the EU and in seeing off Nicola Sturgeon as Scottish First Minister. Don’t count Sunak out.

WAGE DRIVE

Target is offering its employees in the US $24 per hour in wages plus free healthcare if you work over 25 hours a week. Starbucks has set its minimum wage at $15 per hour and others have followed suit. Throughout the West increasingly, the lowest paid are getting much needed pay boosts as the unwinding of Covid-19 continues and job markets remain tight. It is a welcome trend.

Starbucks has been amongst the firms which has bumped up pay

THE BUSINESS OF WAR

Another sideline is a part-time Master’s in War Studies at King’s College London, a topical subject but one that has led to some useful business insights, not least the lessons of the “McNamara Fallacy” (named after the US Defence Secretary in the 1960s) which highlights the cardinal error of mistaking quantification for a proper strategy. It is a lesson many in the business world – particularly in the media and tech world – should heed.

CAN I QUOTE YOU ON THAT?

I came to a moment where it was a very dark moment. I’ll leave it at that, but I came out of that moment.

Government minister Steve Baker opens up on his mental health issues

PORTRAIT OF A DIFFERENT COUNTRY

I run a series of podcasts with outdoor company JC Decaux UK and recently interviewed Zoe Harrison from 1854 Media and Janet Guest from Decaux about the Portrait of Britain photography series. If you have not viewed it online, do so. It is not only a powerful illustration of the diversity of the British population but a strong reminder that it is easy living in central London to forget there is a wider Britain out there which has perhaps vastly different experiences to the readers of this column. We ignore the issue of growing polarisation in our society at our peril.