Better to travel…?
A long time ago, I worked as a stockbroker in London. The market makers’ job was to provide liquidity to the London equity market and make money for the firm while so doing. To this day, their comments have guided my view of stock markets.
As a junior analyst, I was asked repeatedly to “talk to the pitch” about a movement in the price of one of our companies. Repeatedly, I was informed that the reason for the move was “more buyers than sellers” or “more sellers than buyers” depending on the direction of travel. Up there with “come back when you have less time”, the response was as true as it was flippant.
Following the immediate reaction to Covid-19 in March 2020, most equity markets have enjoyed a period of recovery unparalleled in recent memory. In the last year, the major indices have increased by almost 40%.
Now, as we enter hopefully the last stage of this journey, the sellers appear to be gaining ground. There will be myriad reasons for this, not least that we may have become more sensitive to what constitutes “value”. Balance sheets have been re-built and, in many cases, improved over the last year. Cost bases have been assessed and “right-sized”, as evidenced by the growing disquiet amongst investors over executive pay.
It is likely that the Corporate world will exit Covid in better shape than it entered. What does this mean for equity value? Will investors look for even more improvement and, if so, in which metrics. Acknowledging that the “machinery” has been refurbished, will they look to revenue, market share gains, price differentials? Will they expect more improvements in cost management and continued gains in margins?
We believe that investors will look to “new”. They may encourage M&A, they may seek out IPOs or CPOs, they should look for the last 16 months to have meant something. We believe that “new” is wide ranging and that the previous dichotomy between public and private is eroding. Our “The Future of..” series is designed to bring investors and entrepreneurs together, all focused on the “new” and how this becomes the “normal”.