The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
For those who watched the webinar and took notes, there are some heroic assumptions built into TE 's projections .
Operating profits to double in the four years to 27, free cash flow to treble in that period. That's despite £1.5 bill of disposals, Including activities that will not produce returns in the short to medium term (SMR'S?) and joint ventures to reduce development costs(and of course subsequent profits), an increase in capex of £300 mill, and NO increase in R&D.
It also reveals what has been clear for some years, that RR got themselves into a terrible tangle with their dollar hedges which will take several years to extricate themselves from.
It was also revealed that a substantial following wind is expected from the utilisation of deferred tax reliefs.
It was interesting that many of the analyst's questions were expressing doubts about the viability of TE's ambitious plans. I said some time ago that TE is an accountant, not an engineer and this package is very clear evidence that this is a slash and burn approach to RR's recovery.
A reminder, I don't hold but I am still watching with interest and would happily reinvest but only at prices below
£2.
At the risk of boring the rest of the board, I'll add one or two more comments.
Interest on gilts is normally paid 6 monthly, so as you will almost definitely buy between those dates the price you pay includes that portion of interest already earned for the current period.ie if you buy exactly halfway between two payment dates you would pay the quoted price plus a sum equal to half the 6-month return, and the seller not unreasonably gets the interest he has already earned,as you say pro rata for any other dates. The other factor to consider is whether you intend to hold to maturity or not. depending on the issue date and the coupon the gilt may trade above or below the issue price (which is always £100)eg some long-dated bonds issued years ago have coupons of 1/2% and trade at a significant discount , with these you can hold to maturity and get a capital return as well as the coupon, others, as you note, include a guaranteed capital loss at maturity.
The good news is that there is a sufficient range of gilts in issue to tailor your buying to your own needs, high returns for a short time, or guaranteed steady returns for decades.....
I'll stop now, I can sense the other on the board dozing off...
good luck.
HI tambo... quite a few of the major brokers offer gilt purchase, I use II but I'm sure Hargreaves, Andy Bell, and others offer. Gilts are pretty much the largest traded assets in the market, prices are pretty good, ie you can trade very near the published price, they are easy to sell and you are right, profits are tax-free even outside an ISA. So long as you understand the basic principles(when IR's rise Gilts fall) and recognise that despite all the furore they are much less volatile than shares , they can be a useful part of a folio, particularly if like me, you are moving from asset building to asset preservation. I have been investing for many years and am now at the stage where I am more concerned with wealth preservation and income generation than cap app. There is also IMV a high probability that IR's will fall at some point maybe months away maybe a year or so, but when they do gilt prices will appreciate.
GL
Guitar... AFAIK it's not a figure that will appear in the accounts, rather it is for internal use and is presumably the basis on which LGEN transacted the transfer. The one piece of data we won't get is how much money changed hands between Boots and LGEN and indeed in which direction. That number will be very C-in C (commercial in confidence) as it is a number that all of LGEN's competitors would love to know. Revealing the CSM can no doubt be used to guesstimate what the deal was but it depends on the perceived quality of the PF assets taken on, and the profile of the retirees, now and in the future. Incidentally, another snippet I picked up is that the BOOTS scheme was closed to new entrants in 2010., so LGEN will have an almost complete knowledge of the number, age profile, and benefit sums due to the PS beneficiaries.
Smithers apols again. I am aware that expertise and experience vary widely on these boards from those clearly better versed in some aspects than me, to some who invest without understanding the risks. So, for the benefit of ALL I try to post establishing the underlying principles in operation. Sure, that sometimes means teaching my granny to suck eggs, but often the benefits of my postings accrue to others, rather than the initiator of the debate.
Snippet in todays news .
LGEN is booking a CSM (contractual service margin) addition of £ 910 million in respect of the boots deal. in simple terms that means that sum is expected to be earned over the lifetime of the deal (probably a 10 year figure).
Smithers...No intent to offend or insult, it's just that there is a lot of misunderstanding on these boards and an awful lot of taking brokers' reports at face value. I have been investing (successfully) for many years and do my best to clarify/correct misunderstandings as my previous posts here and elsewhere bear out. It's worth doing some background reading on the " LDI crisis" of last year to understand how driven by government caution
(the PRA and FCA) has upended the world of banking and insurance and as is often the case meant regulation has had seriously negative consequences.
My previous post was an attempt to explain why the logic of LDI is actually working in one sense and to illustrate that LGEN while it manages a vast amount of assets does so to fund the equally vast amount of liabilities and not primarily to earn fess as those holding assets on behalf of clients do. It's the difference between being primarily an "insurer" and being an "asset manager. "
Pre emptive response - if I've offended you again I'm sorry!!!
Hi Smithers "A sovereign debt crisis" is when a government cannot repay its debts. It has happened on many occasions but almost always for nations whose debts are denominated in other currencies. In the case of the UK(and very few other countries) we can always "create" sterling to pay our bills, the effect of that would be to devalue the currency and it would have significant implications, BUT as LGENS assets and liabilities are both denominated in sterling it would not be a direct risk to them though it would clearly have enormous ramifications for UK business.
Your second point about reduced fees seems to me to misunderstand the nature of LGEN's business, most of LGEN's income is in insurance premiums (only about 7% is management fees). insurance premia are based on risk and LGEN obviously competes with other insurers in this arena, taking on higher risk will add business at the expense of competitors but LGEN has no need to do that nor have they shown any signs of doing so in recent years, I don't see that changing.
There's an awful lot of misunderstanding about Gilts: I hold quite a few and the situation is this. When a gilt is purchased the return (ie the interest paid) is FIXED for so long as the gilt is held. If interest rates rise, the capital value of the gilt falls BUT the rate of return remains as it was at the time of purchase. SO, as gilts are purchased in large quantities by pension funds and insurers like LGEN to meet a known set of liabilities in the future, it doesn't really matter whether the capital value of the gilt falls. In fact, a look at LGEN's last two annual accounts shows that LGEN's
assets fell by almost 70 billion pounds in the year, BUT that really doesn't matter because the income stream those assets provide remains broadly the same. In fact, a period of Rising interest rates allows LGEN to "Roll Over" expiring gilts and buy the same value of new gilts which pay a higher coupon ie interest rate.
One other factor to note is that the Boots deal constitutes an addition of about 1 % to LGEN's asset base.
I am by nature a cautious investor but I have no qualms about this deal , indeed I look forward to many more as pension funds which have for many years been severely underfunded find themselves almost in balance and leap at the opportunity to take advantage of the chance to hand off responsibility.
It's important to understand that LGEN has taken on (for an undisclosed sum)the responsibility for paying Boots pensioners AND the assets that Boots held to meet those liabilities. At the time of transfer the fund was around £63 mill in credit and Boots has agreed to inject a further £670 mill into the fund . Given that LGEN already has an enormous asset base of around £500 billion (yes BILLION), any risk attached to this deal is minimal, indeed LGEN has clearly executed the deal in order to make profits, and as I suggested a few days ago ,as Boots is a forced seller it will have been done on terms favourable to LGEN.
This is a very significant deal for LGEN, in the current climate where funding pension liabilities is much easier than in recent years, many companies are looking to offload what is perceived as a millstone. (see BT as an oft-quoted example. In effect, boots are paying LGEN to take on responsibility for the pension fund at a time when funding that responsibility is easier than it has been for some time.
It helps LGEN bulk up its business in an area where size is stability.
As ever a view on the SP this morning is hard to predict BUT in the medium term, it can only be very good news.
Beo1...
Full expensing is a 100% first-year allowance which allows companies to claim a deduction from taxable profits that is equal to 100% of their qualifying expenditure in the year that expenditure is incurred.
Spring Budget 2023 – Full expensing - GOV.UK
GOV.UK
It is NOT
"The only thing "Full Expensing" does is delay the timing of that tax payment, it doesn't stop it. "
Blah, I tend to both buy and sell in tranches, but I'm more disciplined on the buy side. I set targets on shares that have/are falling and if I'm feeling brave add as they fall further (though almost always confined to large-cap, stable earners). when it comes to selling, I invariably sell too soon (see RR, and MKS lately!!). If the situation obtains where I can sell most at a good profit and run the rest "free" I sometimes do.
As a very long-time investor, I am gradually moving my folio to defensive positions, more bonds, pref. shares, gilts, and stable high divi earners. I'm essentially trying to minimize/eliminate risk.
As I suspected, the markets are driven more by fear than optimism these days, have added a few in the 1080s, may not bounce immediately, but WILL in the relatively short term.
Amidst a spectacular set of results, this
" Although bookings have been a little slower in recent weeks with average load factors currently 1.3ppts down on Winter 2022/23 at the same point,"
is likely to be seized on by the markets and may cause a sharp fall at the open this AM. If so, I will take the opportunity to add to my position in a well-run, company now in a sweet spot as everyone wants a holiday to get away from the constant griping about the UK from the media!
I am confident in the medium-term future here and see some way to go in the SP.
Yeah absolutely true BBD. I sold 70% of my holdings in August at 926 p and the remainder this am at 1102 p. My view remains that I'm happy to have collected a reasonable profit and will redeploy the revenues elsewhere where I think prospects are now better. Good luck to you if you continue to hold.
H
Had a glance at BT's latest AR, relevant data as follows:
Total capex in the year on PPE (property plant and equipment) was £4bill of which Openreach was £2.8billl, consumer (ie EE) was £660 mill therefore if all were subject to expensing that's £3.5 bill X 25% = £875 mill. tax relief. (see page 160 of AR)
Looked at another way (see p 177 of AR)
Openreach's PPE was recorded as £29.1 bill in April 2021,£31.2 bill at Apr 22,£33.7 bill at Apr 23ie additions of £2.1 bill and £2.6 bill in each year. So IF ALL of that capex is expensible we are talking of around £2bill pa or a tax reduction of £500 mill pa
whatever the numbers are, it is a significant impact on BT's bottom line.
See page references above, for anyone who wants to deepen the analysis there is plenty of data to chew on.
Tweedly... I posted this on 12 Nov
"If the Autumn statement does extend expensing then the benefit to BT over the next few years will be significant , from the latest AR Openreach spent £2.5 bill in the year to MAR 23, obviously not all of that expense will qualify BUT a very large chunk, must. Thus, over the next 3/4 years BT's notional tax deduction may well be reduced significantly .
A wet finger in the air: say £1bill (of total exp) pa X 25% for four years =£1bill which will drop through to the bottom line. Given that BT made just shy of £2bill last year, that's equivalent to an uplift of 12% Pa over the period."
Now that we know the details I'll do a more in -depth analysis and post maybe tomorrow.