Member Info for Meconopsis

Completely correct Lending.

And yet I go back to my point that you don’t ask for permission to buy back 10% and only buy back 1.5%.

1.5% makes it look like you haven’t a Scooby when you asked for 10%. If they land at closer to 7% then it looks more like judgement.

They’ve only announced £200m so far. They haven’t stated that as the only shares they intend to buy back.

As I say, I wouldn’t be surprised if the announcement of completion of the Cala disposal wasn’t accompanied by a buy back using a the first payment and associated solvency capital release.

I could, of course, be completely wrong…

@helloDave - just because Amazon has messed up one thing doesn’t mean that they’ll mess up another. All studios mess up.

What we don’t know is how much creative control the Tolkein estate retained. Take Harry Potter. J K Rowling wasn’t paid very much for the first three films, but retained a right of veto on casting, which gave her huge creative influence.

What we do know is that GAW is all over their IP and won’t do a deal that doesn’t represent it.

Let’s not be negative on a deal that has the potential to double or treble our share price…

@Istabrraq - I would expect that we get a restatement of Solvency II ratios sometime in H1 2025, which will free up capital to be redeployed.

As far as I can see, the analysts are pretty clueless…

“vegan sausage roll”

Like a sausage roll. But without the joy.

(With apologies to the vegans on the board!)

50 would certainly give us a nice Santa rally.

@Crossley - one thing I missed was the effect of the Solvency II reforms, most of which kick in on 31 December. Have a look on PHNX for my thoughts. It will almost certainly free up more capital.

The gulf in Solvency II Coverage Ratio between LGEN (223%), MNG (210%), Aviva (205%) Just (197%) and PHNX (168%) is striking. Just dropping down to MNG’s ratio would free up nearly £1bn.

“May I ask? Is it the blue variety you grow?”

The blue ones are annoyingly lovely when they grow for me. Which isn’t very often.

Apologies for ruining your Saturday! 😂😂😂

This is right on the edge of my knowledge...

A good summary of the changes can be found here - https://www.pwc.co.uk/financial-services/assets/pdf/uk-government-overhauls-solvency-ii.pdf

This is dated November 2022, but most of the changes don't take effect until 31 December 2024. Only the changes to Matching Adjustments is currently live.

Probably the biggest change for PHNX is the reduction in the Risk Margin by 65% for Periodic Payments. It also provides greater flexibility about which assets can be matched to what liabilities; and provides less prescription about how companies construct their compliance models.

My understanding is that this will reduce the Solvency Capital Requirement ("...the funds an insurer must hold to ensure they can pay claims and survive difficult periods...").

Reducing the SCR, in principle makes capital available for other purposes. PHNX runs a solvency capital ratio of 168% - so every £100m reduction in the capital requirement would free up £168m of capital. (Or they could choose to "use" the capital as further solvency capital ratio buffer.)

Thronegames - they are more likely to go for 0.25 cuts in November and December than 0.5 in November. The issue becomes one of over-correcting.

It's important to understand that the 2% target is a medium term target, so is managed to a range of closer to 1.7% to 2.3% with the target of the average being 2%.

[As a throwaway, this is why the new target dividend increase rate is 2% - so that the dividends hold their value against target inflation.]

@Crossley

My suspicion is that Simões has been tasked with moving the share price and will be judged by the Board on his ability to do that over a three year period. (L&G is like an oil tanker - it turns slowly. With legal requirements, it usually takes around six months just to do the HR element of a big reorganisation - the statutory bit can easily run to four months.)

He needs to move the current trading range of 210-240 up by (I'm guessing) to 310+ to declare success.

Whilst I recognise that the "savings" add up, they don't compound meaningfully enough for Simões to keep his job.

My view is that we'll see a £400-500m buyback once the Cala sale completes this year; followed by £300-500m next year. That puts us in the 10% ballpark, which - in principle - brings a re-rate to 230-260.

The dividend saving then becomes a more meaningful £120m a year, which you add onto next year's Cala payment to give a £250m buyback.

...continued from last post.

But £730.5m isn't £1.3bn.

So, the next place to look is the Solvency II Capital Ratio.

L&G currently runs a Solvency II Capital Ratio of 223%. (Taken from the half year report.). Most other similar companies run at 180%. There is nothing requiring L&G to run at this level and it could choose to drop to 180%.

So, what is that 43% between friends?

To answer this you need to answer this is page 4 of https://group.legalandgeneral.com/media/w3jj3uqn/legal-and-general-group-plc_2023_sfcr.pdf (If you go here then you'll spot the ratio is reported as 224%, rather than 223%.)

And the answer is a cool £3.2bn, which I think we can all agree is comfortably more than enough. A 1% change in the ratio is around £74m - so it's easy to see how they could drop down to a 210% ratio, freeing up £964m.

I am not saying any of this will happen. BUT, as I say, in a grown up company you don't ask for authority to do something that isn't feasible...

I've been pondering this and running some numbers.

So, for what it's worth, here's my view.

I start from a position that says that you don't ask for authority to buy back up to 10% of the company's shares if you don't have at least a view about how you might fund that. Otherwise you end up looking like an idiot to the shareholders.

Anchoring some numbers:

- let's take market capitalisation as £13bn - so you need £1.3bn to buy back 10%

- dividends for 2023 were £1.212bn so will be £1.273bn

- a 1% increase in dividend therefore "costs" £12.73m in the first year

The company has reduced the 5% annual dividend to 2% - "saving" £38m. This clearly isn't going to make a dent in the buyback - so the money is coming from elsewhere.

The Cala disposal gives £1.16bn net after debt, but L&G will need to Corporation Tax on the net gain of £770m. This leaves £967.50m

The initial Cala payment is £500m, of which £192.5m will go in Corporation Tax, which gives £307.5m this year. (Tax on disposal is paid in year 1 - not when you get the money).

Assuming the remaining money is evenly split, then L&G will get £132m a year for the following 5 years.

An important thing to understand (and mentioned in the announcement) is that the Cala sale also releases of around £100m of Solvency II capital requirement. This is capital that L&G needed to keep on hand to service foreseeable cash requirements. Given L&G run a Solvency II capital coverage ratio of 223% then this actually releases £223m of capital.

So, we have £307.5m from the sale this year plus £223m of released capital. Giving £530.5m - to which we add the already committed £200m.

So, we're at £730.5m. Which is looking a lot more interesting :)

Continued in next post...

“I successfully grew my first blue meconopsis this year after many failures. Got the location right this time.”

Ours came first three years running, but now refuse to survive.

Utterly frustrating.

Just like shares ;)

And with perfect timing…

https://www.sharecast.com/news/news-and-announcements/shares-under-pressure-as-government-fca-probe-car-insurance--17701506.html

The FCA is currently on track to annoy absolutely everyone in the industry. The “unintended consequence” of this is going to be the public being offered less and less useful products.

Whilst commentators have compared this to the endowment and PPI scandals, there are important differences.

In both of those cases, the products were clearly mis-sold.

In the case of endowments, often on a promise of outsized returns without wanting that they could also fall short of repaying the mortgages they supported. (Although, ironically, most of them would have done that if held to term.)

The issue with PPI was that many people sold policies were either covered by existing work benefits - or would have been unable to have ever claimed it.

The issue here is that people *might* have paid more interest than necessary because dealers had discretion about how much interest to charge.

This practice is now banned, but was legal at the time.

The FCA have gone after finance in two counts. First is a failure to notify clients that there was a discretionary commission element. The second one is a whether customers were offered “best value”.

The compensation awarded in the two test cases was the difference between the two interest rates, plus 8% statutory simple interest.

Barclays are arguing that this is regulatory overreach; the FCA is seeking to (effectively) fine companies for something that was entirely legal. This is why they’ve sought a judicial review, which challenges the decision-making process, rather than the decision itself.

There are real issues here for financial services companies as the FCA has other things in its sights like car “gap” insurance.

“And a mistry at vistry. Todays price range seems strange. Has it become the day traders' dream?”

It could be an institution exiting a sizeable position and struggling to find sufficient buyers to support the volume being offered for sale.

“I have cash sitting in Trading 212 account paying 5%, totally flexible no fees. what do people think about that option?”

It depends on how much cash you have and whether you bank with Barclays.

Trading 212 are FSCS registered, so in principle you’re good up to £85k. And/but, Trading 212 banks with Barclays - so if you bank with Barclays then you need to count any money in Barclays in the total.

From a safety point of view, money is “safest” held in funds that invest in and hold real securities as they should be ringfenced in client nominee accounts.

…have any idea what’s driving the +6.3% in a week and +10.5% in a month?

Don’t get me wrong, it’s not unwelcome. But, in the absence of news, the rise seems to suggest that someone knows something…

Trek - the Acc one seems to have interest added daily as it’s priced daily. And/but - I tend to use it to either park money that’s waiting for an opportunity or hold “next year’s” income as “cash”.

Trek - I use the Royal London Short Term Money Mkt Y Acc fund (ISIN GBOOB8XYYQ86) - there is probably an Inc version.

1 year trailing yield is 5.4%