Member Info for Guitarsolo

Can anyone confirm if a REIT is able to direct operational profits towards debt repayments before paying out money as dividends to retain the REIT status? In other words, can the profits usually payable to shareholders be used to pay down debt (a amount of the company's choosing) and then pay out 90% of what's left.

If so, NRR can keep reducing debt by using funds that would otherwise be a dividend to pay back the debt. Not very appealing for shareholders but perhaps better than dilution at an unattractive rights issue discount.

Porsche posts the same thing to multiple boards (HSBA, RR, ITV, DLG, HL.....). It's just a bot, or someone as irrelevant as a bot. Just put them on ignore.

Ade2a, sorry I am a bit short of time to respond in detail but in answer to your list of points, there are a number of inaccuracies. For example:
7) You say Yahoo reports the dividend payout is 150%, or Simply Wall St says it is 116%. Both are incorrect and I prefer to go straight to the horse's mouth (https://cdn.janushenderson.com/webdocs/HFEL+annual+report+2020.pdf) where you will see on page 21 that the payout for every year between 2011-2020 has been just under the EPS (i.e. under 100%). So in 2020 the EPS was 23.71pps and the payout 23.00pps.

That's why, for every year for a decade, HFEL has added to its reserve fund - see the Chairman's statement to the 2020 accounts.

Guitarsolo

The thing is, it has to be done or we do face a climate catastrophe which will lead to all sorts of other problems. Taking the approach of "I'll stick with what works at the moment until the alternative is better" was an option 20 years ago, but having allowed people to take that approach for 20 years we have now used up all that leeway. If more had been done in the past we could have taken more time.....but we've strolled up to the station and 1/2 mile away we can see we need to sprint the rest of the way. We are reaping what we've sown and it is as much about attitude as technology.

I'm not a huge fan of buybacks when it is done on this sort of scale (or smaller). Buying back, and presumably cancelling, a couple of % of the share issue has a negligible effect on EPS, NAV, share price etc. I always fear it is just a manipulation tool for a BoD to make things look that tiny bit better but hope that people conveniently forget the improvement was paid for with the company's own cash!
To make a serious difference a buyback has to repurchase a significant proportion of the share issue. I have investments in VSL which has recently done this by repurchasing over 27% of the shares at well below NAV (note, this is a different animal and that has partly been paid for by shrinking the balance sheet of investments). The result, an ever growing NAV premium and a share price that is creeping up. Eventually you hope the EPS follows etc.
It is not feasible for DLG to buyback on that sort of scale. If they are going to tinker around the edges of share issue, so be it. At least they are doing it when the share price is low!

Scandi, the fundamentals make this one not a good share for trading.

When the fund launched it had just over 382m shares. After a huge buyback program there are circa 278m shares left in circulation as nearly 105m have been bought back - representing about 27.5% of the original share issue. As buybacks go, that's huge (and well below NAV).

Now, of the 278m shares that remain, there are owner/managers (Levy) that own large chunks (I want to say nearly 20%) and institutional investors who own a hell of a lot more. Add to that private investors like me that will cling onto their shares it means that there is very little liquidity of this share.

Trading volumes are about 400,000 shares a day I want to say. But that includes the company buybacks and Levy and Co adding to the manager's position and dividend reinvestment plans.

I suggest buy and hold. You probably have to buy in smallish blocks if going through a usual platform.

VSL is a very good investment in my opinion, but don't lose sight of who they are ultimately lending to.....(sub-prime). There's risk and reward.

Guitarsolo

Hi Rivaldo,
I'd agree there has been a re-rate (and long overdue).
We've gone from a P/E of around x10 (@400p) to around x15 or x16 (@750p) over a period of say a year during which EPS is heading in the right direction.
The question is, are we done now? A P/E of x15 is solid for a company growing at circa 10% a year in my book. Sure RNWH holds another couple of high-value cards being low/no debt and with so much non-discretionary spending etc.
But a higher P/E (say x20) in my book is reserved for companies with very strong growth (e.g. +30% a year) which I think is optimistic for RNWH.
So, does that mean the re-rate is largely done?
Guitarsolo - not complaining! Just strumming.

NAV at the end of June now EUR 15.24! A stonking 16% increase in the first six months. Assuming they stick to the 5% of NAV as the dividend, next year's divi will be another nice increase. We'll have to see what happens in H2.

Guitarsolo

Although not in a distressed position, this is a tale of control your debts before your debts control you.

Not casting any aspersions on NRR here. They were toeing the normal line of LTV before then pandemic etc. But it highlights that when extraordinary things happen (like pandemics or financial crashes) debt can expose you in a way you wouldn't expect.

And I was just about to run a quiz for predictions having nabbed 1.47p for myself! It wouldn't have taken a genius to guess that...

More important will be what the EPS came in at and whether it has grown from last year (4.58p I recall off the top of my head). It would be good to build a reasonable gap between the EPS and dividend to allow for more than 0.01p per annum increases.

Bravo Franco indeed (in these times).....but let's face it, he's done it to be able to say he has "always increased the dividend every year"!

But I'm not moaning......!

Well that is nice of them! Did they give any commentary why they believe in that target price?

So we have the underwhelmingly predictable increase in the quarterly dividend (Q3) from 5.8p to 5.9p. So full year will be 23.6p or 7.27% yield at present prices.

I haven't seen any commentary but recall that the last update confirmed that the dividend was just covered by earnings (in fact a very minor contribution to the reserve fund). So all looks well on the yield front.

Capital depreciation has been disappointing (for me at least) but I'm a LTH so not so worried. Management wants to talk up the rotation into value stocks away from the tech/growth - but I am not sure that story is done yet. But I don't see how a company can have a trillion dollar valuation (2 trillion for Apple!) without having the earnings to back that up. And that would be $50bn a year+ which is eye watering.

Boring as it may be, companies that make/sell/service stuff for money and make a profit must one day be appreciated!

Katenip, we're talking about a +/- 5% fluctuation around a 275p mean. I don't think much is being driven by recent news. Perhaps the inflation worries and long-term impact on interest rates. But these are back-stories in my opinion at the moment. LGEN continues to grind on and make predictable, dependable returns. Will it do something to radically alter that, perhaps but unlikely.
And on ESG, they have set their stall out which I think is admirable. It's far from an outlier position (see Aviva doing something similar) but it is important. We're not just talking about millennials who take pro-ESG attitudes, I find the majority of under-50s do to some degree, and some oldies as well! At the end of the day, you can't fight against mathematics, it always wins!

SD235 " You can't put pressure on companies if you don't own their shares."

I would disagree. Any large insurance company that does not have a £trillion investor willing to buy their shares specifically because of their climate policies is shooting themselves (and their shareholders) in the foot. Less demand for their shares will see the share price fall, other investors question their investment (or sell up), brings publicity the company could do without etc. So you might need to be a shareholder to speak at the AGM etc, but a large investor can still exert pressure by their absence, if it is notable enough. And LGEN is notable.

Well done LGEN. They can't change everyone but they can be a big part of the process with over £1trn of managed assets.

REITs are tax efficient in the sense that they don't pay corporation tax, provided they distribute 90% of their net income as a dividend. The assumption is that the recipient is then paying tax (i.e. there is no double taxation). If the recipient is a private individual you can hold REIT shares inside an ISA and then there is no taxation on the income at all. That's where you achieve maximum efficiency if your holding that kind of number of shares (i.e. in the £1000s or £10000s but not with more zeros!).

Wow! If 20% is the net profit then it looks even rosier! As you say though, that margin will undoubtedly be squeezed by OEMs, particularly the large ones. But with a £2bn market for carbon ceramic brakes and that kind of profit margin, getting a sizeable share will be very profitable.
It would be nice to have more legal protection to stop Brembo copying their technology, people with know-how can be poached! But building the kind of infrastructure they are is time and capital consuming so new entrants will be up against it.
It is quite remarkable that such a market has been a monopoly until SCE arrived on the scene.
Anyway Al180, thanks for your reply!
Guitarsolo

From Insurance Wire:

"The UK’s motor insurance market is expected to make losses in 2021 and 2022, according to EY’s latest UK Motor Insurance Results. This is despite the country’s motor insurers recording their best underwriting profit since records began in 2020, with a 90.3% Net Combined Ratio (NCR) for the year. For 2021, the industry is predicting a 103% NCR due to underlying inflation, with premium rate drops and rising costs associated with the FCA’s Pricing Review."

Might explain a bit of the current weakness. Losses not necessarily the worst thing in the insurance world, and DLG is hopefully insulated a bit with better than most underwriting and from writing lots of different lines of business. It would be nice to remove some of the competition!

Guitarsolo

Managed to watch the whole video (in several stages being interrupted by work/children).

So much to like about this company. Product is superior to the competition (although Brembo are trying to copy), price competitive, monopolistic market for carbon ceramics ripe for disruption as OEMs seek to de-risk supply chains, steady but ambitious expansion plans, no sign of a third market player yet (and it would take them 7-10 years to get to SCE's position). I could go one but you all know this already!

The presentation briefly mentions a gross 20-25% profit margin, before costs etc. That sounds healthy to me but what do others know of specialist industrial manufacturers?

Also, does anyone know whether any of their products benefit from trademarks? How much protection does their (hopefully superior cooling) product have?

Guitarsolo - slowly building a small holding as I like what I see so far.

Eccles, check out this physics website. If I was in a stationary car hit by another at 30mph when I had taken my seat belt off, it would be like being hit by a 23-tonne truck. Is that enough force for you?!

https://www.omnicalculator.com/physics/car-crash-force

Whiplash is real (your F1 analogy isn't accurate for many reasons) but I think we can agree that it is something that has been abused by claimants, lawyers and doctors (easy get-out) for many years and it is a good thing that it is being challenged. But I think trying to deny it exists in anything but the extreme does a disservice to the positive development facing us.

GS.