Member Info for Colbee

JamTart : ¨there is seemingly a minister for common sense in the uk¨

It's just common sense to check stuff you see on the internet before repeating it, ditto anything Trump says is a fact.

Unitman - I wasn't talking about you or me selling. I was replying to a suggestion that Treasury shares tie up (potential) capital that could be better invested by the company. That's possible, if the return on capital would be more than the dividend rate.

Invstrat - ¨Much Better to stick it [the value of the Treasury shares] in a piggy bank earning 1% pa.¨

Err, no. Returning the shares to the market would mean paying nearly 6% dividend on them.

I'll go for a year end of £1.48.5, as that's the profit point on my long term shareholding. Well, I can dream.

Stanley - ¨and a seat in the House of Lords like Blair and Brown¨

Except neither of them has one. A small thing to be thankful for.

Booboobooboo ¨Worth noting that we still have about 1 billion in redeemable preference shares in Zegona.¨

Also worth noting that these shares pay 5% interest a year for the first three years, and that then increases if they are not redeemed. Zegona decides when to redeem; it looks a good bet that Vod will be getting the billion (euros) in the next 18 months. Scope for more buybacks?

Booboobooboo - ¨Its all about EPS¨

So, as I said, your original post, quote¨It's all about market cap¨ was misunderstanding why that is.

Kingshott and Dan are right, as are your search results. Buybacks don't have any direct effect on the share price. They may affect it indirectly, by influencing market sentiment and they aim to do that longer term by improving performance indicators. Also , they save some money in dividend payments, though for VOD that's hardly significant. If VOD continues upwards, they'll have been good for us shareholders. Fingers crossed.

Dan - Being right 50% of the time is a good percentage for me, but in the hope of improving it, I'll try again to explain profit and loss.

Yesterday I bought a sandwich for my lunch today at the local supermarket. I forgot to get milk and when I went back for that later I saw my lunch at half price. Did I make a loss on the sandwich, or did I just miss an opportunity?

Actually, I now have two sandwiches for lunch, so I averaged down on price. But I'll eat any profit today.

Curtin ¨based on your example after buying back 99 shares the company would be left with £1 market cap.¨

Correct, as the company has spent 99% of its market cap buying its shares, it would have 1% left.

Booboobooboo

Here's a corrected calculation, not relying on a magic money tree.

100 shares in circulation

£100 market cap

£1 per share

share buyback 20 shares ,the treasury cancel so no long exist.

80 shares in circulation

£80 market cap, since the previous 100 quid value reduces by the 20 quid used to buy the shares.

£1 per share

It's not that hard,

Dan - Nah, it's not common sense that if Vod buys shares it's speculating in their value. The plan seems to be to cancel most of the shares, so there's no capital gain/loss after transferring them to Treasury. They're effectively valueless, worth nada, regardless of what was paid for them. The discussion point is whether Vod timed the purchase optimallly. Feel free to disagree, your posts are entertaining. And I'll admit I've badly mistimed some of my VOD purchases. Good luck for the week ahead, onwards and upwards (except in the number of shares in issue).

Booboobooboo - At least Dan understands that market cap can go up or down. If I spend a hundred quid, I no longer have it.

Booboobooboo ¨It's all about market cap¨. The problem with your calculation is that it's all based on market cap remaining the same during a buyback. If a company has cash at hand, its market value should reflect that. If it spends that cash buying back shares, again its market value should reflect that it now doesn't have that cash. The shareholders own bigger percentages of a company with a lower asset value.

That's also part of the problem with Dan's ¨basic common sense mathematics´, though he's hopelessly confused and thinks somehow VOD makes or loses money through buybacks, according to how the share price moves. VOD makes money whatever happens, by saving on dividends. In fact, a few years ago it sold treasury shares to institutions at a high price, then bought them back much more cheaply when the price fell. Neat move, except if you want that investment again!

There's a question about timing and opportunity cost, but the effects of buybacks on the share price are likely to be long term, not short term. I like buybacks, for sure, but let's not ignore that they're company expenditure. And the share price reflects the market's valuation of the company, it's not the other way round.

At risk of going back over old ground, how do buybacks increase the value of shares in any significant way? The company uses its cash to buy its shares, so the overall value of the company is reduced. Each shareholder benefits more from future growth, but there's no immediate growth from the buyback. Also, if the previous return on the cash used for the buyback was less than the company was paying out in dividends, there's a saving to the company there, giving some scope to increase dividends, which would be positive for the share price. I'm not against buybacks, but there's a question at any time about whether repaying debt is more advantageous, also there will be potential returns from investing the money. The good news is that VOD is doing all three.

IanKellett - Why would the new chairman insist all shares bought back are immediately cancelled? Cancellation would increase the share price. Obviously that's good for us shareholders, but it means less will be bought back. I'd rather the board looked at the end of the buyback programme to see how many it needs for its share schemes and cancels the rest then.

Weirdpal - You ask if the 670 million treasury shares is a high percentage. Last year about 230 million shares were distributed in December to employees, as part of share incentive schemes. I've no idea how many shares BP is on the hook for this year, but a fair amount will surely be intended for that.

Dan "I can't see there being a divi increase, but If there is I will have to pay tax on it. I would prefer an increase in the sp"

Fair point. The divi has been cut substantially in recent years, undoubtedly necessary as it was unsustainable, but even a small increase would show some intent to move it back up. The company is making savings from the buybacks, effectively that's coming from what was paid to us shareholders. I realise it's not a lot of money, but I'd hope any increase in the divi would also help pull up the share price.

Any drop tomorrow will suit me, I'm reinvesting my (modest) divi in some more Vod. Might have to wait a bit, but I think the downside is limited and the divi surely can only increase from here. If 90% of the buybacks are cancelled, that alone gives a little headroom for a small divi increase.

Invstrat

"Was the assumption made by the naive, approving shareholders that these shares [i.e. the buybacks] would be cancelled ?"

It depends whether the approving shareholders bothered to read the explanation the company gave at the time for wanting to do buybacks. If they read it, then they would know cancellation wasn't the main intention.

PANG I think you're using a DRIP, not a SCRIP. BP hasn't offered a scrip option for several years.