EDITOR'S LETTERMerryn Somerset Webb
Bad news for WeWork this week. Turns out the public market just isn’t that into it. Investors reckon there is a strong chance that the model (long-term debt on buildings let out to short-term tenants, with a little free beer chucked in along the way) might be unsustainable. Given that chance, they decided that they weren’t mad to pay to value the company at the $65bn it originally thought might make sense, or for that matter, even half of $65bn (maybe $15bn – but really not much more). The initial public offering (IPO) has been pulled. Perhaps investors are beginning to see sense when it comes to unicorn IPOs (see moneyweek.com for more).
Still, loss-making companies with pretend-disruptive business plans and no pathway to profit coming to market at stupid prices aren’t the only thing the market reckons to be unsustainable. You can also be a highly profitable entity with a multi-decade record of paying out reliable annuity-style dividends and be just as spurned – if you are involved in any way in the fossil fuel industry, for example. Pension funds around the world, charities, family trusts and even the Church of England have been busily divesting from fossil fuel stocks in an effort to show just how much they disapprove of the whole business. This enthusiasm has so far had very little effect on the environment. As Bill Gates notes, thanks to the fact that few fossil fuel businesses need to raise new capital from the market anyway, they don’t care who wants or doesn’t want their shares. Result? Divestment has so far “reduced about zero tonnes of emissions”.
It has, however, had a different and interesting effect: pushing share prices in the sector down, and yields in it up. Before the latest leap in the oil price (short-term oil bears should note that the upside risk of politics taking oil prices hostage has been a constant for as long as any of us at MoneyWeek can remember) BP was yielding 6.4%. And even on this week’s price it is offering 6%. That’s nice. But it might also be something to worry about. One of our big concerns is that too many companies are either not listing or going private – something that offers the returns to the few, not the many. If fossil fuel and resources firms get more reviled and hence cheaper, they will leave public markets too (they can – they need neither the new capital nor the constant nagging). Then, just as retiring MoneyWeek readers could do with their yields, those yields won’t be available anymore. That’s a shame – given the choice of financing 20 years of retirement from the returns from WeWork shares (the IPO is now scheduled for October) or from the dividends being thrown off by fossil fuel firms as they run their businesses down, I know what I would choose.
Finally, a note on politics. What happens if one way or another we end up remaining in the EU? That might seem absurd to ordinary democrats, but it isn’t impossible at all given how fantastically the post-vote Remain campaign has been run (the evidence for this being that three years after a fairly clear referendum result we are still in the EU). You might think that revoking Article 50 would make everything okay again (as Jo Swinson obviously does). We’ll stick with the status quo. No change. Nothing to worry about. If you do think this however, you think wrong. Completely wrong.