Member Info for 1GW_

In terms of the timing of the announcement promised in the 13th December release, I have previously said that I thought they were pushing it a bit. i.e. the commitment was to "release full details on the program as soon as they are finalized" and the implication (to my reading) was that this effectively meant as soon as they had received the required consents and met the regulatory requirements. So I couldn't see that they would reasonably need more than 1 month for external consents, even over the Christmas / New Year period.

But I suppose an alternative reading is that their plan is not formally to finalize the details of the program until the board meeting at which they also approve a quarterly TU, even if they have all other consents in place before then.

So still a bit undecided on whether the apparent delay is more likely to be because they have now entered into some M&A discussions which make it difficult to finalize the details, or whether it's just a preferred timing issue and they want to finalize the details at the same time as they approve a TU.

The amount of the capital reduction is a bit of a red herring as far as the buyback is concerned.

As I understand it, a company is unable to make a capital distribution (dividend or buyback) unless it is showing retained earnings in the company balance sheet. If you look at the R1 company balance sheet in the full-year accounts it has gone from a retained deficit of £8m at 31st March 2017 to retained earnings of £137m at 31st March 2018, principally through the capital reduction.

i.e. it has gone from a position of legally not being able to execute a buyback to a position of legally being able to execute a buyback.

In terms of financially being able to execute a buyback, though, it is the consolidated balance sheet that is relevant (subject to the distributable reserves limit). So cash and equivalents of $22m at 30th September 2018, and as I understood what Bonney said on the webcast this had become $31m as of the then "latest full week cash report" and was expected to grow further from there as receivables from their seasonally strongest period of business were collected.

So in that context, a buyback program of "up to $10 million" should be eminently doable.

It appears to me from the Edison note that the "Retail (discontinued)" line does refer to the Sainsbury active kids scheme.

Edison's DCF valuation moves up while its peer comparison valuation moves down. The resulting "blended valuation" is still a long way above the current share price.

Someone selling into strength today, though, by the look of things.

The 1H £5.5m gain on derivatives was down to the exchange rate at the balance sheet date. i.e. they marked their forward foreign exchange contracts to market, as I understand it.

Whether they record another derivatives gain, or a loss and whether any loss is big enough to wipe out the 1H gain, will depend on the actual exchange rate at the end-year balance sheet date (29th March presumably). Given current Brexit issues, a lot of uncertainty on what that $/£ rate is, I would suggest.

Skindle - the £17.1m 1H pbt included a £5.5m fair value gain on derivatives.

The adjusted 1H pbt strips this gain out and was £11.6m and this is the number that should be compared with the £26.0m-£28.0m analyst forecast range that they quote, I think. So if they're coming in towards the top end, i.e. £28m, that is a very nice 2H.

Very nice. Hopefully good enough to give the share price a boost. I don't remember seeing before that part of Education was being treated as "discontinued", other than a statement on the Sainsbury Active Kids scheme.. Did I miss that?

Discretionary clients. So Killik likely to have chosen to sell TLY, unless the clients were pulling out a significant proportion of their money and Killik reduced across the portfolio.

"Platform Securities (on behalf of various discretionary clients of Killik & Co LLP)"

"The term "discretionary" refers to the fact that investment decisions are made at the portfolio manager's discretion. "
https://www.investopedia.com/terms/d/discretionary-investment-management.asp

In case it's not clear what I mean by NewCo paper is a deal structured as:

R1 shareholders get xp in cash plus y NewCo shares for each R1 share
TAP shareholders get 1 NewCo share for each TAP share

where NewCo is a new company set up as part of the acquisition/merger process.

Brassneck, an acquisition by TAP of R1 would only make sense to me if it were mainly paper. That way the "low" price of both companies' shares is less of an issue and they don't have to take on significant debt. So as with R1 buying YuMe I would have thought R1 would want most of TAP's cash as an acquisition "premium" if you like, and then the balance would be paper of some description. The paper could be TAP paper, although R1 shareholders might be more interested in UK-based Newco paper, assuming a US-based Newco wasn't an option.

But as I said in a previous post, I'm not trying to push this as a likely outcome, just think it's something that could conceivably be under consideration and would sort of fit with what seems to have happened with R1 and YuMe.

Unless of course R1 need some US regulatory consent for the buyback program - in which case might the US government shutdown be having an impact?

On the subject of acquisitions, the longer R1 delay announcement of the buyback program details the more likely I think it is that they are in discussions on an inorganic move. The commitment on 13th December was to announce details of the buyback program as soon as they are finalized. Even allowing for the holiday period I think a month is pushing it a bit, unless something has happened which means they can't finalize the details or would have to delay the implementation significantly. I don't even think that waiting for a 3Q TU is a particularly good excuse for the delay since they could announce the details of the program and state that it would begin after announcement of such a TU, if one is planned.

Given TAP's announcement about suspending their own buyback program because they have entered into preliminary discussions with a potential acquisition candidate, I don't think it's impossible that that candidate is R1. It would to some extent fit the pattern of R1-YuMe if TAP were to offer to buy R1 paying a cash sum plus paper and then R1 management were to move into position in TAP - effectively a reverse takeover with Bonney leading the combined company. That would solve TAP's problem of finding a new CEO, would allow R1-TAP to get more scale benefits, would give TAP access to R1's US-based infrastructure with associated latency benefits (I presume) and would give Bonney another rationalisation exercise to sink his teeth into.

Still relatively low probability I think, but becoming more plausible with continued delay in announcement of the R1 buyback program details.

"The Board has approved, subject to required consents and regulatory requirements the implementation of a share buyback program of up to $10 million. The Company will release full details on the program as soon as they are finalized. "

Perhaps still working on the cash bridge to demonstrate the "Cash generation continued to be strong" comment?

strictly - I was also in the market this morning, having decided to finish off my swapping back out of CRST into TEF i.e. sold all (but 1) of the CRST shares that I bought with the proceeds of my TEF sales.

CRST still my bigger holding, but both CRST and TEF now in my top 10 holdings, and my only 2 housebuilders. I'll think about whether to go further and swap some of my "base" CRST holding into TEF. I like your hypothesis of bvps/sp mean reversion (and am grateful for the forward analysis), and do think TEF more likely of the 2 to come out with a positive update in January, but on the other hand think perhaps CRST has greater financial flexibility to get through a "bad brexit" period without too much further damage.

Yes, I watched that webcast before I bought back in on Friday. I thought it seemed pretty upbeat, with a distinct possibility of a market-moving announcement on choice of BTR partner and scope of partnership within a few weeks.

Somehow I managed to miss the BAML holdings notices. So that's another 7.2% which may or may not be linked to one of the other holdings. If not, then following Morgan Stanley's departure (< 3%) that's 88% accounted for.

Toscafund appear to have got rid of at least 13% (18.3% in the annual report so 18% threshold down to below the reportable threshold as of 19/12, assume 5% threshold). Morgan Stanley (5.9% as of 19th Dec) plus BAML (7.2% as of 17th Dec) is about the same total of 13%. Was the Credit Suisse position (11.5% of which 10% fi - cash-settled swaps) also linked to this? MS and CS are now gone (below threshold) but BAML is still holding - on behalf of whom?

I'm now a TEF shareholder again having sold some Crest to buy TEF. I have swapped the same value as my last tranche from TEF to CRST and it has worked well on that amount (swapping into Crest on 18th May when the Crest shareprice was at a 9% discount to the TEF shareprice and swapping back today with Crest at a 16% premium). However, since my first tranche in November 2017 was with Crest at a 26% premium to TEF it looks more marginal on the weighted average of my 3 swaps into Crest (which had Crest at a 9.5% premium to TEF). Accounting for dividend entitlement doesn't change the numbers much.

Proof, if nothing else, that there is a fair bit of volatility in the relative prices of this particular pair of housebuilders.

"Geographical analysis of the Group’s revenues, including analysis between the Group’s country of domicile and other countries, is not disclosed under IFRS 8 as customers are primarily based in the US with a small proportion being based in other international jurisdictions"

Page 61, R1 Annual Report

With that Credit Suisse notification, the numbers start to look a bit more plausible. It seems to me, on the basis of holdings notices and annual report, we now have:

29.9% Sports Direct
18.7% Schroders
10.0% FIL
5.8% City Financial
4.9% Henderson
4.5% R&M
4.1% Aberforth
3.2% Ennismore

For a total of 81% excluding any residual Toscafund holding and also excluding today's Morgan Stanley notification, which I assume is probably linked somehow to one of the existing holdings. If MS is holding on its own account or on behalf of an interest not already in the above list then that would take identified holdings to 87% of voting rights.

To note that some of the sub-5% holdings (e.g. R&M I think) are already below the notifiable threshold and so they could have decreased from the number shown in the list without giving a holdings notice.

Nice start on a generally quiet morning.

I suspect Toscafund is subject to the 5%/10% notification thresholds rather than the 3%,4%,5%,6%,...

- based on their notifications in talktalk, where they first declared at 5% and then at 10% as far as I can see.

So this would mean their recent notification here is for going under 5% rather than under 3%, although they could still be out completely

That's interesting. I saw Toscafund as behind the move to facilitate SPD's entry in the first place. Surprised they've sold down to such an extent before the SPD saga reaches a conclusion (unless they think it has). Below the notifiable threshold means below either 3% or 5% I think, depending on the structure of the shareholder - e.g. for OEIC's it is 5%.