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A Note: this approach differs from the traditional. Traditionally valuations use the actual and current share price and per share earnings/free cash/dividends to determine yields. This approach uses required yields on future earnin)gs/free cash/ dividends to determine intrinsic share value. Basically looking at it from a diametrically opposite point of view.

Answer that and investing would be a doddle- buy when the SP is well below intrinsic value and sell when above.

But getting a handle on what it is worth is far from straightforward IMHO. This is my attempt to frame this question from the point of view of a co-owner of the business whose ideal holding period is forever (pure Buffett).

To me the worth of a company depends on how much cash is generated in future and, importantly, on the return (yield) I want to get on my investment. The approach is to discount those future cash streams with the required yield.

To explain the concept. If I offer you £10 each year forever, what will you be prepared to pay me for this cash stream? I guess you, too, will offer an amount that depends upon the return (yield) you would wish to get. Say this yield is 10%. You can then calculate the intrinsic value.

One does this by dividing £10 by, in this case, (1+10/100) once for the first year, twice for the second year and so on forever giving the yearly sequence £9.09; £8.26; £7.51; £6.83, ………….etc, which, when added together, gives exactly £100. OK, the maths works - back calculating value from future cash flows.

So now to LGEN - which has been, and probably will be, around for a long time; and gives out most of its income as dividends or buybacks. I think the same discounting approach may be of some merit to give pointers to LGEN’s intrinsic value.

LGEN paid a dividend of 21.48p this year. So what would the intrinsic value of the SP be if this same dividend was paid out each year forever and you wanted a 10% return on your investment? Unsurprisingly 214.8p. And if the yield wanted is 7.5%; 286p: and for a yield of 12.5%; 171p.

But what if the dividend were to increase by 2%pa forever. The share value at a required yield of 10% will be 273p: and for a yield 7.5%; 398p: and for 12.5%; 208p.

And if dividend increased at 5%pa with a yield of 10% 450p. And so forth looking at different scenarios and the timing of future cash flows.

All this presupposes LGEN will continue supplying a generous dividend - I hand no reason to suppose it won’t - but the approach is equally applicable to basing the calculation on Earnings or preferably Free Cash Flows rather than dividend flows.

In my view these types of calculations are not meant to be predictive, but to paint a somewhat fuzzy picture of possible outcomes to lend comfort to, or lead to discomfort with, my investment decision. But central to this view will be the yield I wish to get vis-a-vis risk free gilts - in my case 10%, about double the long term gilt yield. So, as Couerdelion mentioned recently, the higher the gilt yield, the higher the yield the market will require from LGEN, and consequently, the lower the SP (and visa versa).

But, If nothing else, these calculations explain why brokers - who use DCF methods to evaluate companies- come up with such wildly fluctuating valuations.

Oops! “ result a temporary increase of supply of shares” should of course read “ result in a temporary increase in the demand for shares”

The reason some - me included - don’t reinvest the dividend on dividend payment date is that the dividends being reinvested on that day often result a temporary increase of supply of shares (those wanting to buy ) in the market. This will cause the sp rise to entice holders to sell. This does not always happen, but it is something I have noted over the years.

Another possible reason for a subsequent fall is that the next dividend will be a long way off and investors might feel - in the interim - that there is a more lucrative hunting grounds elsewhere in the market.

Of course the market can be manipulated with concerted effort, but I think the volatility is mostly just Mr Market being his bi-polar (manic depressive) self.

“earnings will grow by a colossal 49.1% each year to end-2027.”

Is this not more to do with the re-equilibration after the change from IFRS4 to IFRS17? In other words cosmetic rather than a big change in business performance.

Eckie. “Unfortunately L&G value has stagnated and continues to underperform the FTSE”

Although over the long term LGEN has underperformed, I think the question is will this continue or will the refocus by current management transform it? According to Morningstar has significantly outperformed the FTSE over 1 yr on a total return basis which encourages me to think we are on track to a better future. Rather than being disappointed I am encouraged by what I am seeing in the business transformation.

It is perhaps interesting to think through how the sp could be affected around ex dividend time under different scenarios.

It seems to me that most agree that theoretically the sp should fall on going ex dividend by the dividend amount, because, on giving away the dividends, the value of the company as a whole will fall by the value of the totality of the dividend payments.

But, Mr. Market, may have different ideas based upon what punters may be doing before and after ex dividend.

So, for instance, what could happen if sufficient punters decide to “buy for the dividend” before ex dividend and then sell thereafter. This may result in more wanting to buy during the run up to ex dividend than those wanting to sell at that time. In turn this would result in the price increasing to entice sellers to sell. Under this scenario the SP would rise in the days before ex dividend.

Then those who “bought for the dividend” may then wish to sell after ex dividend - leading to a situation where there are more wanting to sell than buy at that time - so the sp would fall. So under this scenario “buy for the dividend” could result in a change in the SP around ex dividend greater the dividend amount. So this might not always be the smart thing to do.

Anticipating this, others may wish to do the opposite and sell any holding they have before the ex dividend with the idea of buy back after ex dividend date, which, if the above scenario plays out and they are in the minority, may be the smart thing to do. But if they get it wrong, and are in the majority wishing to sell rather than buy before ex dividend, they would be selling low and buying back high. Not so smart in this case.

So the game akin to poker will be played, bringing into play other scenarios as well. A game which I wouldn’t have the competence to play, so I stick to my buy and hold philosophy.

As a reminder - as it is pertinent to the market dynamic - in SETS (automated “A” trades) the number of shares bought at the time of the trade have to be exactly matched with the number of shares sold. Whether recorded as a buy or sell depends on the market dynamic at the time, and the rules applicable, but for each share bought there will be one sold no matter how recorded. When the transactions are done through money makers (“O” trades) buys to and sells from mms aren’t exactly matched in time as mms keep an inventory - but generally they keep inventories small to reduce risk, so the time different between shares being sold to the mms and then sold back to the market by the mms is usually quite short.

Incidentally one share sold/bought through SETs is recorded as volume 1. One share sold to a mm and sold back to the market is recorded as 2. Volumes and buy/sells recorded are not always what they seem!

“My friend earns £350K a year.”

So he will be paying north of £10000 a month in income tax. His getting £1000 back to help pay the extra cost of an autistic child seems right and fair to me. The others £9000 goes to help others less fortunate and society as a whole.

Casapinos

Thank you for your comprehensive and clear response to my query. I understand where you are coming from - and if that approach works for you, all well and good. We all have different methods to evaluate investments, and what works for some, may not be appropriate for others.

With my thinking, I don’t think the “yield on cost” metric is useful for me.

That is because I take the view that the reality is that the current SP determines the capital value of my holding and it is irrelevant, when making a decision what to do next, what the original cost was. It may be a loss or a gain on the original investment , but, to me att least, that is not part of the decision making process. A loss is hard to take sometimes, but that is the reality and nothing much can be done about it. What matters to me is how the future potential returns on my current holding of company stack up against the numerous options available in the market. Hold on, or sell up and move on to pastures new?

Casapinos. I have no problem with your calculation of your personal return on your capital spent - but only as long as your average SP is correctly calculated as total current net cost of buying your shares (capital employed) divided by the current net number of shares held.

But my question is the relevance of your personal yield (your yield on cost - or what I prefer your return on your capital employed)? What is it telling you which you don’t already know?

If the personal yield is below the market yield (dividend per share divided by the market price per share) all it tells me is that you would have paid too much for the shares, and by how much, which you already would know. - and visa versa.

It also allows you to compare your (risk assessed yield) with equivalent risk assessed markets yields. But where is the added value of this information? How do you use this information to make better investment decisions?

I remain curious as I cannot see how this information would help me.

Krustysmegma - point noted. Then like any other Ponzi scheme when the new contributors dry up, the scheme goes belly-up.

The state pension is run like a Ponzi scheme which, in any other circumstance, would be illegal. And like any other Ponzi scheme, it is difficult to get off once it is in operation.

But is it is what we have, and almost impossible into change into a scheme that accumulates into a pot of money to pay out later - as any private pension scheme would do. People working pay now, but with the assurance that they will be given something back when they reach pension age.

Yes, contributions now from working people flow directly to pensioners, but looked another way, they are just paying for the right to have a pension themselves when they reach pension age.

Sorry BD - I misinterpreted your question. As a long term holder I have always wondered the same thing the same thing.

Beaded dragon

If you have say £100 in account your net worth from this account will be £100. Give away £10 - your account is now worth £90. But then you add your earnings to the account it will then grow back to £100 sometime, but you hope it will be more than £100 when you next give away £10 so your net worth from that account will grow.

So it is with companies. Fundamentally the SP should fall by the dividend amount on going ex dividend and then grow again as earnings ( or, better, free cash) is accumulated. Sometime illogical Mr Market may also have his say, so what should happen fundamentally, is not always followed in practice

Hope that explains the basic, but simplified, concept

My brother-in-law paid NI for over 45 years - 10 years more than needed to get a full pension - so he deserves all he can get.

Somehow, though, that part of the NI contributions that should be earmarked for pensions should be in balance with outgoings on pensions paid. But that is not the way government finances work - everything goes into one big tax pot. If UK Inc. was a company it would bankrupt years ago.

And the liability on Civil Service pensions is astronomical.

The new chairman is doing what any chairman should do - that is look after, and focus, on our interests as owners of BP. Too few do.

Viva - an independent BP!

Redacted.

I think it best to use your ISA allowance whatever the tax rate. But if you have more to invest than this allowance, then the decision needs to be made where to invest your dividend or growth stocks.

So a basic rate taxpayer would be better, imho, protecting against the 18% GGT in an ISA, and paying the 8.75% dividend tax in a share account.

A higher rate taxpayer would be better, imho, protecting against the 33.75% or 39.75% dividend tax rate in an IsA and paying the 24% CG tax rate in a share account.

It seems the RNS just issued suggests KKR may still be willing to play the game!

The poo today is important in valuation and will, of course, affect current sentiment and the sp.

But to my mind, as a long term focussed investor, of greater importance to the sp is what the market considers will be the poo from now into the future. For this reason I was not expecting a huge bump to the sp based upon the current poo.

I remain much more interested in BP finding and commercialising low cost oil and gas reserves -leading, in my view, to a more robust future outcome than any prediction of the future poo.