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Thedetector
“Anyone using cash now to buy Aviva shares will lose out due to Aviva sp recent rises. Also have less shares for divi payout”
On the other hand if someone used the returned capital to buy AV shares when it was received on 19th May, as I did, they would have more shares than they did prior to the consolidation and own a greater proportion of the company due to the latter.
I'm sorry TheDetector but I think it's you that hasn't comprehended the implications.
Large amounts of surplus cash can either be invested to grow the business (by acquisition) or returned to sharedholders (either by way of a special dividend or capital return, makes no difference). Growing the business is usually preferable but only if the right opportunities exist. Investing simply to use surplus cash should be avoided at all costs.
On balance, I think returning the surplus cash to shareholders was the right move at this time. It does not show a lack of ambition, AV can always come back to the market at a later date if the right opportunity affords itself, but sound business sense. How the surplus cash has arisen is irrelevant. In the absence of a good, complimentary business opportunity, surplus cash on the balance sheet is an underperforming asset (the interest return on surplus cash would be significantly less than the return on the rest of AV's business).
As regards the reduced dividend, you are completely wrong. You have less shares but a higher dividend per share. As I said in my previous post, read the RNS, read the circular and (please) do the maths. If AV had not done the capital reduction you'd now be looking at a future dividend of c23.56pps rather than 31pps. You say that future dividends aren't guaranteed (pie in the sky) and yet moan that your (future) dividend income has been reduced. Your argument is not coherent!
Finally, you might argue that if AV had retained the surplus cash it would have been a (very large) buffer against future economic downturns and/or provided addtional income to pay even higher dividends. The former point has some merit but can be counterproductive (companies become lazy, less efficient and more prone to delay making critical decisions during market downturns; leaner companies adapt more quickly because it's sink or swim). As for the latter, I would suggest that AV could currently get an investment return of no more than (say) 2.5% on invested surplus cash (assuming they deposited it on a long term fix) whereas I can currently get a projected return (albeit unguaranteed) of c7.1% if I invest that cash in AV shares today. My preference is for AV to give me that money so that I can invest it in AV shares (or another high dividend yielding company) and obtain a higher return on that cash than AV can offer me by keeping the money in the business. I've actually invested some of my cash in Vesuvius because I wanted to diversify my dividend portfolio and reduce my exposure to AV's sector.
Hi TT.
I don't think that you have fully comprehended the implications and mechanics of the recent consolidation event.
The returned cash is defo not 'like' a dividend. A dividend is a payment of a portion of profits of an organisation and your share count is left intact and full.
The recent cash return is a portion of surplus cash on the balance sheet due to Aviva company disposals and not profit.
Anyone using cash now to buy Aviva shares will lose out due to Aviva sp recent rises. Also have less shares for divi payout.
Divis are pie in the sky until they are in our accounts as recent events have proven.
Given a choice I would have abstained from this smoke and mirrors forced event by madame Whitey.
The detector, the returned capital is just like a dividend. If investors choose not to reinvest that capital/dividend, that is their choice. Even now, if investors chose to reinvest that returned capital in AV their dividend income would be more than their dividend income before the reorganisation because their % holding would be larger and the total dividend pot is expected to be at least the same, if not more, than FY2021. Okay, no dividend in guaranteed but if you are investing for income then it's a win.
Greygeorge, I'm just looking at one transaction to try and determine whether that transaction has benefited shareholders or not (and trying to quantify that). I've chosen LGEN as a comparitor because it operates in the same sector and has certain defined characteristics e.g. EPS, DPS etc. for comparison. The assumption is that over a short period of time both AV and LGEN are subject to the same external economic factors and, in the absence of any specific, share price news it's not wholly unreasonable to assume that AV's share price movements would have closely mirrored LGEN's without the the capital reduction and trading update. I'm not trying to determine whether AV is a better investment than LGEN (indeed I hold both shares in my SIPP) or whether AV has out/underperformed LGEN over any given fixed period of time. Yes, AV's share price has performed better than LGEN's over the last week but that does not prove that AV is a better investment than LGEN or vice versa. LGEN is simply a benchmark which enables me to strip out the (estimated) impact of external factors that might have affected AV's share price over that period to try to prove/disprove whether or not the capital reduction was benefical in the short term. I may be saying very little (to you) but at least I'm not saying nothing at all (by the way I write, not read, my thoughts; do keep up), LOL!
So, TheTrotsky, you're choosing an arbitrary timeline to prove...what, exactly ? Why not compare Av. three year under-performance to Lgen three year market performance ? You used a lot of words to say very little, and to prove nothing, except you seem to like to read your own inflated thoughts, I'm afraid. But you do you, lol.
Correction..
less capital growth.
And the conclusion with this in depth self explanatory is that any investors still holding returned cash will not of appreciated any capital growth and will be worse off .
And probably peed off with this smoke and mirrors manoeuvre of Miss Whitey.
All the Georgey.
Thedetector, I'm afraid to agree with LTI (for once) and say that your analysis is, I believe, flawed.
In my previous posts I've set out an estimation of the share price increase, by comparison with LGEN, that might be attributed to the surplus cash discount built into the share price prior to reorganisation (although remote, until the opening on 16 May there was still a possibility that the capital return could be pulled and, as such, some risk would still have been factored into the share price at close on 13 May). Assuming that AV's share price had simply tracked LGEN's since 16 May and there had been no share consolidation/capital return, then AV's share price might have been expected to be c414.95p (100.2% x 101.45% x 408.2p) at today's close, which would value 100 old shares at £414.95, whereas at today's close 76 new shares would be valued at £330.45 (76 x 434.80p), which together with the £101.69 capital return, would make a total return to date of £432.14 per 100 old shares (a c4.1% improvement).
As regards the dividends, you seem to be labouring under the misapprehension that AV would have increased the FY2022 forecast dividend to 31pps regardless of whether or not they'd made the capital reduction. They would not. In FY2021, AV paid 22.05p per OLD share, which is equivalent to 29.01p per NEW share. In the press releases AV highlighted that they were proposing to pay 31p per NEW share to emphasise that they would not be reducing their overall dividend payout, which is often the case following a capital reduction. If AV had not proceeded with the capital reduction, AV would be proposing to now increase the FY2022 dividend to c23.56p per OLD share (31/29.01 x 22.05p). Your dividend payout has not been reduced by the capital reduction. If you still don't agree, I suggest that you re-read the results RNS and subsequent circular.
Apologies, there was a typo in my previous post.
The estimated closing share price at point (4) below should have read c414.11p (1.045% x 408.20p) not 415.11p. As a result:
a) The value of the remaining shares at point (5) would be c411.08p (not c412.39p);
b) The closing price at point (7) would be c411.90p (not c413.21p);
c) c22.9p (not c21.59p) might be attributed to the impact of the reorganisation and c17.25p (not c18.56p) might be attributed to rectifying the share price turmoil after the reorganisation; and
d) c57% (not c54%) might be attributed to the unwinding of the surplus cash discount (a c5.3% discount)
My apologies
Interesting snippet for those of you with an open mind and willing to discuss the pros and cons of the capital return and not shoot down anybody who does not agree 100% with your interpretation i.e. excluding LTI ;-)
As of tonight's close, the share price of AV's closest competitor, LGEN, is 252.8p, just a smidgen more than it's closing price of 252.2p on 16 May, whereas AV's share price has increased from 394.65 on 16 May to close at 434.80p at tonight's close. Now some, mentioning no names, will attribute all of that gain to the reorganisation whereas some of us are willing to be a bit more opened minded. So, here we go:
1) Assuming that LGEN is a reasonable bellwether for AV's market segment;
2) Between 13 May close and 16 May close, LGEN's share price increased from 248.70p to 252.30p (c1.45%);
3) AV's unadjusted closing price on 13 May was c408.20p;
4) Assuming that there had been no reorganisation and AV's share price had moved in-line with LGEN's on 16 May, it's not wholly unreasonable to suggest that AV's closing price would have been c415.11p (101.45% x 408.20p);
5) Allowing for the capital return and reduction in number of shares, and following the maxim that the value before equals the value after, then the value of your remaining shares on 16 May (stripping out all the market shenanigans on 16 May) might have been expected to be c412.39p ([100 x 415.11p - 100 x 101.69p] / 76);
6) Since 16 May, LGEN's share price has increased from 252.3p to 252.8p (c0.2%);
7) Assuming AV's share price had simply moved in-line with LGEN's, then it's not wholly unreasonable to suggest that AV's closing share price tonight would have been c413.21p
8) It could therefore be postulated that there has been a c21.59p increase in AV's share price (434.80p - 413.21p) since the close on 16 May which might be atrributed to the impact of the reorganisation and a c18.56p increase in the share price (413.21p - 394.65p) which might be attributed to the market "putting right" the price "manipulation" that occurred in the immediate aftermath of the share reduction.
So, by (rudimentary) mathematical analysis, it could be argued that c54% of the share price increase since 16 May cannot be explained by market fluctuations and/or the share price turmoil in the immediate aftermath of the reorganisation and could be attributed to other factors, the primary one being the benefit derived from the unwinding of any surplus cash discount (the assumption that, on a discounted cash flow basis, the surplus cash returned as part of the reorganisation wasn't being valued on a £1 for £1 basis) in the share price prior to the reorganisation being completed (the above figures would suggest a c5% discount, which is not wholly beyond the realms of reason).
As of tonight's closing prices, LGEN is trading on a historic dividend yield of c7.26% whereas AV is trading on a historic dividend yield of c6.67%, which is within my pre-reorganisation target range of (0.5%-1%).
I will try and help you again.I am not referring to the cash in Aviva balance .I am referring to OUR situation that the cash value of OUR holdings would be worth more post consolidation event if we had not participated in consolidation and had a choice to abstain.( SP has rise post event).
We would have had our original share amount which would have attained more growth cash wise because we would have owned more shares. More shares would also equate to higher cash payments received at divi allocations.
Anyone who did not or could not reinvest returned cash will feel wronged and cheated.
I hedged my bests and topped up my LGEN holding pre event with in mind an effort to attain growth if ftse rallied during and post event.
It was my decision alone.Time will tell if is a smart move or not.But alas it was my decision only. I am a man with a plan.
Best of luck with your plan.
All the Georgey.
A14X
I also bought on consolidation day as I knew my broker would be slow getting the capital return to me , it was a great price too just over 390, so hoping do indeed get to 500p as I may sell some , but I do think 500p is a tad optimistic ,GLA
td
''you would have gained the whole of post event growth in sp price.And more shares to qualify for future dividends.''
divi pot between more shares means less per share.
So you are suggesting that the £3.75 Billion cash that was sitting on the balance sheet would now have been valued by the market to be worth about £4.16 Billion.
I expect that with your losses on consolidation of smoke and mirrors you would dearly love to revert back to your pre event position .
If you now had your previous numerical share position you would have gained the whole of post event growth in sp price.And more shares to qualify for future dividends.
Delusion is not a page in my book.
All the Georgey with your own delusions.
Al
well done - unfortunately on my platform Aviva shares were unavailable to purchase for the whole week following the consolidation - I made do with a spread bet on the day. I have made a strong complaint highlighting what their inability to deal with the corporation action swiftly has cost me. It has gone to the complaints dept, but I am not holding my breath for compensation.
Another consolation is that I purchased before the consolidation shares that I had previously sold at about 457p
I bought AV the day of the consolidation.
I used other funds to buy back while I waited for the consolidation money to come through.
Currently looking like a good decision with price climbing 390 to nearly 440!
I actually bought back more
1670 - before consolidation
1269 - after consolidation
2000 - after reinvest.
I'd love to get to 500
s/p seems to be moving well, can see this at £5 soon gla.