RE: Magic £2213 Apr 2022 14:55
Boyo - Shell is today breaking above its long term upper trend ceiling. You will find this disturbing but I totally agree with you, and would add that it is a serious breakout. Also many thanks for your charts & must read commentaries & insights - they are on my essential reading lists.
Regarding buy backs I have absorbed and agree with much of what you have said. My advice though would be to be a little more open minded about them, starting from the point of view that there is a barely visible alchemy that seems to take place with them.
My take is - and apologies for being brief as I need to break for the Borders in a few minutes. You have stated previously words on the lines that when a company sells say 25% of its, possibly profit producing assets, the company becomes 25% smaller, with the same number of shares in issue. Yes, I completely agree with you, it becomes physically 25% smaller & I don't see how anyone can argue with this. There are a lot of variables to add in to the equation - for instance I was always taught that the company might then "sweat" its assets - making them work harder to make up the gap.
Simplistically the company then has 25% less company physically, but assuming an astute sale of the 25%, is left with a big chunk of capital equivalent, which can be used for multiple purposes. Dividends we agree - when they are gone they are gone - but are very nice to have for shareholders.
With the buy-backs our views tend to diverge around this point. Shares are bought and cancelled. Any shares that exist own a 25% smaller company. But the alchemy appears to be that the smaller number of shares go up in value. Don't forget that Biden intends to tax buy-backs in the US at 1% - they see this as not killing the Golden Goose though, so there is seen as quite a bit of meat there. So they see it as leaving companies to "invest" in themselves, but also raising revenue for the Government out of the equation.
I think you might agree that buy-backs and cancellation streamlines the company capital structure. Also sellers in the market are likely to be deterred if they know that Shell's broker is going to buy say 1m shares at the end of every day until say the 5th May. Less shares are in issue, in a technically smaller company, but they generally go up in value. Why!
My take on why the shares increase in value is that say 20 million shares are bought and cancelled by Shell today. They will save $20 million dollars in dividend payouts this year, at 25 cents per Quarter for a year. But this is also a saving going forward every single year, so that on a simplistic basis $200 million will be saved over the next decade. This looks even better if the dividend increases year on year. Also there is an assumption that the $200 million is invested in the business, or acquisitions, and builds increased profitability, and a more sustainable dividend for the future. If buy-backs do not benefit the company & shareholders why do Government
Sign In
Follow the stocks
