Member Info for Meconopsis

The capital markets event today was interesting - if for the pitch if nothing else.

It was unashamedly aimed at saying to analysts that are underestimating L&G’s revenue and margin growth because of L&G’s unique capital position and synergies.

It’ll be interesting to see if it yields the desired effect…

Interesting early statement - "We have used recent market volatility to optimise our back book." This translates into "we're making more money on our back book by having swapped the underlying gilts into higher yielding ones".

Slides are available here - https://assets.lsegissuerservices.com/private/livestream/original-7cfa8a39-eaf0-4589-bba4-b4222cfafb58.pdf?Expires=1750161736&Key-Pair-Id=KM7RXODUF2TYU&Signature=co8o0HJnBtVsTK4XPa2JV5psfbch2rgdqh4INGhhmxZk7luzz1isU9QDjJvD~tEcjXO3-2yk~VeO5Q2T0gUKATk7f~zljhNXuMmqUOHW1fR3oIoBEqZmmJV4fNDKcts8m-dOMGmWzkyaLKJWjiK6u6nnKY8R77mDqEsCK3fTDzxOfUnEKElUJuDo0A~pIdCXnwVvH5egqwQfu3UhJMG-wowG2nUNLHN8iF7w53107AHr9DKVycJlONipZVUfVx1ddPxS6veSTELhEPjvcST0WGVqKWHby5B8Pm6IjL97tNrwNT1yXdyrvkPtQnTwdSa89Gl6xHNbQXjpCvusyPCqTQ__

Some “fun facts” for people.

A road that L&G could build for £100m would ALWAYS cost the Government £120m. L&G can reclaim the VAT. Government departments can’t - so the VAT appears in the headline cost. L&G wouldn’t report the VAT in the headline as they get it back.

Similarly, if the Government borrows all of the money needed to pay for £100m project then it actually only adds £37m to the national debt.

Why?

Firstly the Government gets the VAT back on the headline amount.

Import duties on materials.

The 20%, 40%, etc of income tax on salaries.

National insurance contributions.

Corporation Tax on the outrageous profits of the private sector.

And so on.

All is not what it appears in the world of Government project finance…

DavidBrent

The press only report the relatively fewer muggings and murders that happen every day - as opposed to the far greater number of acts of kindness and charity that happen every day.

Similarly, you only hear about the public sector projects that have gone “over budget” - not the countless ones delivered on or under budget.

Even then (and having spent half my career in this world - for the Government, public sector bodies and private sector) - a great deal of the blame for cost overruns lays at the feet of civil servants.

HS2 didn’t want to build the rail line where it did in Hertfordshire. Civil servants - representing Ministers - didn’t want to annoy the voting public. The line of route imposed was significantly longer than the preferred line of route. Having been forced into that line of route, another bunch of civil servants required the building of that £100m+ bat tunnel.

That’s £300m+ of cost because to you and I.

What’s not reported in the press is that HS2 argued that the bats had perfectly good train-avoidance mechanisms.

Just to add to the fun, those civil servants typically move between jobs every 12-15 months - so over the life of HS2 there have been around 15-20 civil servants in each role - each one that has to come up to speed and who questions the decisions made previously.

And then the Government changes and Ministers have different views.

All of that feeds down to the private sector contractors actually doing the work.

The private sector are not angels. But the public sector doesn’t know how to be a consistent client that sticks with decisions.

Oldbutnowisa - that’s very kind of you. But I’m only “Rachel” on Tuesdays. In the privacy of my own home.

The question, DavidBrent, is whether you understand the basis on which infrastructure costs are quoted?

Public infrastructure project “costs” are baselined and tracked within Government in terms of the £ in the year they are authorised.

So, a road authorised in 2015, yet only started on 2025 because of planning and public enquiry delays is still - within Government - accounted for in “2015 pounds”.

And yet they spend and the press reports “2025 pounds”. The deflation back to 2015 pounds happens only within Government.

A project costed at £100m in 2015 and started in 2025 will “cost” at least £137m from the outset (using CPI as the inflator)with no cost overruns. That’s actually closer to £186m if you take construction cost inflation into account.

So, that road originally costed at £100m and delivered for £145m in 2026 will be reported in the press as being 45% over budget when it’s actually around 15% under.

And that’s before we start a discussion about scope changes, which are never fed back into the original “cost estimate”.

“Private enterprises are deregulated”

Which is manifestly untrue.

I’d suggest not knocking things you don’t really understand on a pedestal of holier than thou.

It reminds me of someone I know in the RMT. A staunch socialist who rants about the private sector whilst sitting on their publicly-funded gold-plated pension; a £3m share portfolio and 7 rental properties.

Private profit being apparently evil, whilst personal profit is fine.

“Big muppet thanks. IMHO. DYOR.”

🤣🤣🤣🤣🤣

Bigred- I’m curious about your posts. Your posting history looks otherwise more measured.

Each to their own though.

Well said tophat.

And before anyone looks…

IFRS13 has also significantly impacted how (what is effectively) surplus capital is recognised on the books.

Larry6 - your dividend will follow you, but may take some time. A polite call with iWeb will probably expedite it.

Eckie8 - your experience with iWeb is different than mine. Dividends seem to land same day for me. Curious.

Mine and my wife’s have arrived into out ISAs.

Knot - I’ve missed the Barclays case. Could you point me at some thing to read up please?

Warthog4 - you've stumbled into a bit of a minefield here to do with accounting standards.

The first issue is that IFRS13 introduced the concept of "mark to market". I means that profits have to take into account any fluctuations in the current market value of assets and investments - regardless of whether they have been (or will ever be) sold. It unfortunately now makes the headline IFRS profit number and any metric derived from it (EPS and dividend cover) more or less worthless.

For this reason, nearly all companies now provide "adjusted" profit figures to try to better reflect what's actually going on. You need to take numbers from the annual reports and not off financial web sites, which all carry the IFRS profit numbers.

Your second issue is that IFRS17 changed the way that profits are recognised by insurance companies - substantially reducing headline profitability. The change was effective on 1 January 2023 and most companies restated one year's worth of prior results, but not more than that. Those restated figures also never made it onto most financial web sites.

So, £1bn in profit reported in 2020 can't be compared to £1bn of profit in 2024.

The best you could do with this would be to look through the annual reports for 2024 and 2023 - the latter or which will contain the restated results for 2022. Then pull out the adjusted profit and EPS figures.

There may well still be wild swings, but at least they'll be the right swings!

I hope that helps.

FWIW, my observation is that share buybacks are generally ineffective when they are too little over too short a period.

Piddling about buying 1% here and then 1% there rarely does anything meaningful.

But 10% bought over a sustained period provides a level of price support that gets shares through minor shocks whilst incrementally moving up the price floor.

I’d argue that AV. has done a better than worse job in this regard - growing the share price to enable the acquisition of DLG.

Just to confuse things further...

Working out how much money you've made on shares after a few years and a few rounds of divided reinvestment becomes annoyingly complex.

As an example, based on my holdings in Aviva...

- 2.5 years ago I invested £10k in Aviva - so £10k is the Sum Invested

- today, after reinvestment of the dividends that investment stands at £15.7k - that's Today's Value

- the total amount I have paid for those Aviva shares - that is the £10k Sum Invested PLUS the reinvested dividends is £11.5k - that's the Book Value

(Go with the PRINCIPLE of these numbers as these are BASED on MY returns, which include multiple purchases and sales. The "£10k" is a made up number, but the scaling of the other numbers matches what's gone on.)

I can calculate my Total Return as either:

- 36% if I calculate it as Today's Value / Book Value; or

- 57% if I calculate it as Today's Value / Sum Invested

I could choose to calculate "yield" based on Today's Value OR Book Value OR Sum Invested, so it's:

- 5.9% based on Today's Value

- 7.9% based on Book Value

- 9.2% based on Sum Invested

Annoyingly (for me) most investment platforms and apps (including divtracker) state returns based on Book Value, which understates the return if I compare it to a fund. This is because funds "hide" all of the dividend reinvestment from the investment platform - so the Sum Invested and Book Value are the same at £10k and Today's Value of £15.7k.

These differences are really important in helping make investment decisions.

My investment platform tells me that my SMT investment is comfortably beating my Aviva investment, when my Aviva investment is actually just ahead on an annualised return basis.

Tracking this stuff is particularly relevant if you buy into something, the share price drops, you reinvest the dividends and then the share price recovers. This is because dividend reinvestment at a reduced share price gives a boost to your Total Return. For example, at one point my MNG investment was -5% against Book Value, but +12% against Sum Invested over a 15 month period (17% gap). It's now a more enjoyable +10% / +30% over a 24 month period (so a 20% gap). The difference between the 17% gap and 20% gap is because my dividends were buying more shares at a lower price when the share price had dropped.

If you have multiple purchases and sales then this stuff can get quite tricky to track.

The only site that I've found that allows you to track this stuff properly is Sharesight, which allows you to import data from most popular investment management sites. Unfortunately, if you've got more than 10 holdings then it costs £8 a month - which is something I'm not prepared to pay when I'm a dab hand at a spreadsheet.

Krustysmegma - I’ve conveniently ignored the cost of capital gains if the investment is sat outside of an ISA.

I will stick my hand up and admit that I track “my yield” along with “total return” on the base investment. Hypocrite, I know…

Krustysmegma and casapinos - I understand your points of view, but disagree on the usefulness of it.

If I have shares worth £10k in a company whose dividend yield is 6% then I’m going to get £600. If I measure that yield against my original investment and it comes to “my yield” of 11% then I’m still going to get £600.

How you measure the yield doesn’t change how much you receive or change the fact that those shares are now worth £10k.

If, with all other things being equal, another company is offering 8% yield for the same risk profile then I find it hard to understand why you’d pass up the extra £200 you’d get for moving your investment.

I will caveat that I recognise that moving investments doesn’t happen free of costs. And few companies are directly comparable.

I’m not saying you’re wrong. Just that I don’t understand the logic.

Very happy to be disagreed!

Gwm121 - I go with the life insurers as I’ve worked in the industry and consequently have good insights into the economics and challenges. As a result of working in the industry I know enough people still in it to get insights into how people are feeling.

IMV the whole sector has been fundamentally undervalued for a while - so I’ve been happy to patiently reinvest my dividends whilst the share prices have been low.

I’m less keen on general insurance as - as DLG showed - a single year’s bad exposure can wreck the dividends and share price.

Hence my slight reticence over AV.

And/but I still hold equal (and significant) long positions in all four.

Outside of the insurers I’ve got some investments in house builders as I think they are cyclically underpriced.

Half of my overall portfolio is in tech funds, which is what I’m relying on for longer term growth.

Lending / clearly my day for duff info 😂😂😂

Gwm121 - I am also in all three. Plus MNG.

IMV the four are different plays.

PHNX is either the tortoise of the bunch or one of the angels from Dr Who - no movement; blink and it’s moved. The market under appreciates their unflashy and ruthless ability to execute and drive costs out of the closed book business. And the CEO has shown himself to be no slouch at building the new business.

AV. is the hare of the bunch. Bags of potential, but it can be a tad too flashy. They have significant execution risk and (now) a lot of exposure to the general insurance market, which is both price sensitive and prone to black swan years. I’m told that both the CEO and CFO are class acts, but that they are struggling with some of the remnants of “old Aviva”. But I wouldn’t bet against them.

MNG is the mutt that may well have greyhound genetics. It’s the most undervalued of the companies by most metrics and Rossi seems to be good at quiet, competent execution. The company had an extremely difficult “birth” into the COVID crisis and I get a sense that it’s about to hit its stride.

And LGEN the unfussy family Golden Retriever - fundamental unspectacular, but very good at returns. Very few companies would be willing to commit to a 3 year total shareholder return of 40%.

FWIW I’m more or less equally invested in all four after a bit of recent profit taking from AV.

I also know people in all four organisations. It gives me no “insider” knowledge, but it does give me an insight into how the management team are viewed and how the execution of stuff is going.