Member Info for Meconopsis

A car worth £16,500 that you can buy for £13,200. That also happens to come with £14,500 in the boot.

So, £31,000 of value for £13,200.

Multiplied by a million.

Previous posts here explain why dividend cover is a totally broken metric.

“Amusingly, SMT seems to be just mirroring the NVDA chart for the past few days.”

…which creates a buying opportunity given that NVDA only represents a small part of the investment.

The discount to NAV here has widened again for - I’d argue - very little reason.

“of course you have to keep up with the level of "deferred operating profit" each year in order to maintain dividend payouts from it...”

Annual dividend payments are approx £1.3bn.

They currently have £14.5bn in their store of future profits, which is an increase - after drawing down and paying the dividends - of 7%.

I don’t know many companies that have 10 years worth of dividends lined up.

It’s worth noting that the market capitalisation of £13.2bn is less than JUST the future store of profits.

LGEN has, in addition, £16.5bn of capital, which is what provides the 223% Solvency 2 coverage. Dropping this to the level of Aviva would release around £3bn to return to shareholders.

ANY company would be punished for a drop in growth rate.

“… the people who sold endowment polices to people knowing they would fail to reach their targets.”

Fun fact DavidBrent…

After all the fuss in the press about endowments failing to provide their “promised” values, it turns out that 90% of people who held them to maturity would have actually gotten the projected value or more on maturity.

I cashed out my endowment in the midst of the warnings. 15 years into an endowment targeted to pay £43k I got £19k out.

A friend who bought an endowment for £55k with the same company within six months of me kept theirs to maturity walked away with £72k on maturity.

I’d argue that the press was more to blame than the investment companies .

I fully recognise that there was A LOT of mis-selling. But overall performance was a lot better than widely believed.

“ Yes, but...a dividend should come from the company performance....not...from sneakily handing you back excess capital...

If they give you back excess capital that should be a separate issue”

Where a dividend is paying you “this year’s operating profit” or “excess capital” is actually quite hard given the IFRS17 accounting standard.

Prior to IFRS17, if a 10 year policy was sold then all of the profit was recognised in that financial year.

Now, that profit is (broadly) cut up into tenths, with a tenth recognised this financial year and the of nine tenths put into a “future profits” bucket that, technically becomes “capital” at the point that it’s not distributed at the end of the financial year.

So, when year 2’s profit is pulled down, it’s paid from retained capital. That’s the accounting.

In non-accounting terms, you can either regard the year 2 payment as a payment from capital or a payment of deferred operating profit.

Regardless of how you view it, LGEN has a huge store of “future profits” that they are currently adding to faster than they are drawing it down.

Christofer - Warren Buffet on hamburgers - https://www.roywalkerwealth.com/2018/01/warren-buffett-on-hamburgers.html?m=1

Great post tophat.

The Aviva interims today make for an interesting comparison with LGEN’s and, IMV, show you need to be careful with the headline numbers.

Aviva has posted a +58% IFRS profit; a + 14% increase in their own measure of operating profit; a +7% dividend increase; but only a +1% increase in CSM (the future store of profits).

LGEN posted a 15% drop in IFRS profit; their own measure of operating profit was barely changed; a +5% dividend increase; and +7% growth in CSM.

For my money, LGEN’s are the better results even though they don’t look as impressive.

Part of the disparity is the different nature of the businesses. Aviva has general insurance, where profits can be realised more quickly. LGEN has more annuity type business where profits take longer to realise.

Also, Aviva having been investing heavily on internal transformation for the last three years. and that will be feeding down to the bottom line. LGEN are in a different place with work on just starting in the investments area.

“SOFP £14bn - Market cap of £12.9bn. This means you are getting all future profits for (less than) Zero. ”

I completely agree.

“What a joke the London Stock Exchange is. No wonder companies are moving to the NYSE.”

The US is driving this - not the UK. It’s nothing to do With the London Stock Exchange or UK economy.

NASDAQ and S&P500 both down 2.5% and 2% respectively.

The L&G global tech fund is down 6.18%. Amazon is down nearly 9%.

I agree stt1. As welcome as changing the planning framework is, people have got to be able to afford to buy, which requires the Government to do some form of Help To Buy scheme.

There is also talk of the Government pushing for mortgage insurance to help lower interest rates on high LTV loans - https://inews.co.uk/news/first-time-buyers-save-hundreds-freedom-to-buy-3176866

“ Amanda Blanc is … a credit taker.”

Isn’t that what ALL CEOs do? I don’t know a single British FTSE company where successful execution of strategy has been credited to anyone other than the CEO.

I am told by a senior peer in Aviva that she is both well liked and often praises the hard work and successes of individuals in way that it is visible within the wider organisation.

I thought the trading update was an object lesson in how to communicate with shareholders - straight forward; well explained whilst managing to avoid waffle; very clear about what they are and aren’t.

Class act.

Both IFRS13 (fair value measurement) and IFRS17 (insurance contracts) have made a nonsense of PE ratios.

At some point, the value of commercial property and other asset values will recover; the insurers will have to reflect a huge gain in the results and the PE will drop to low single digits.

But/and the standards were introduced for very good reasons.

The most likely way of getting out of the mess would be to have (yet another) accounting standard that standardises all the alternative performance measures that everyone is now forced to use to compare year on year performance.

Ho. Hum.

Eckie8 - now tell me which part of “Simones pledge” hasn’t been fulfilled.

"Simone's pledge to return money to long suffering shareholders has not come to fruition yet and probably never will?"

They are doing the buybacks they said they would and paying the dividends they said they would. So on what basis is the company failing to deliver?

A completely reasonable point tichtich.

The tax treatment of both pensions and ISAs could change tomorrow.

All you can do is do the best by the system that’s in front of you and hope that the rug isn’t pulled from under you.

"However, as it happens, the point of my reply here is to give you a heads-up that I'm intending discussing "Passage Planning rates" in the next SB blog post, so hopefully you're still looking at that from time to time...?"

I am indeed.

"Also, as it happens, my previous passage planning rate, for many years, was 15% a year and that has proved to be cautiously valid when averaged out..."

My preferred "weapon of choice" the L&G Global Technology Fund has returned annualised performance of just shy of 23% over the last 10 years according to the Morningstar.

And/but it's a question of whether:

- that can continue - especially given the deteriorating geo-political context

- it's sensible to make financial plans based on returns that are far higher than have been historically achieved

APOLOGIES - transposition error...

So - HOW LONG DOES THE MONEY LAST?

- ISAbestone - 21.9 years

- SIPPbasicrate - (A) £268,275 up front plus 18.5 years OR (B) 22.6 years

- EMPbasicrate - (A) £268,275 up front plus 22.2 years OR (B) 27.1 years

- SIPPhigherrate - (A) £268,275 up front plus 26.2 years OR (B) 31.8 years

- EMPhigherrate - (A) £268,275 up front plus 33.6 years OR (B) 39.2 years

"'If you’re a basic rate tax payer the ISA wins . . . '

Not by my calculations. Perhaps you'd like to explain where i've gone wrong in the example given in my previous post."

We're both correct on this - depending on your assumptions.

You'd calculated using UFPLs, in which case the SIPP wins due to the money coming out with 25% tax free.

I'd assumed that someone took their 25% PCLS, in which case the money comes out neutral. For me, the ISA flexibility "wins" if the post-tax income is the same.

You are generally more correct than I am ;)

"SIPP always losses out long term"

PART 3 of 3 - Who is right..?

From a purely financial point of view, the pension always wins. Long term or short term. The numbers are just noise as you can scale any of them down or up.

It wins big time if you're a higher rate tax payer and your employer makes a contribution. One of my previous employers made a 5% pension contribution and then matched up to another 10%. And they added the employers NICs they were saving. This meant that for every £1 of salary I give up I was instantly gaining nearly £2.

AND/BUT...

Money tied up in a pension (for most people) is tied up until you're 55 - and this is shortly rising to 57. So, regardless of performance, a pension isn't going to allow you to retire at 45.

You take take money from an ISA any time you need it. And - less known than it should be - "flexible" ISAs allow you to take money out and put it back in within the same tax year if needed.

And all of this assumes that the government doesn't tinker with the pension legislation. I agree with StrictlyBricks that governments tend not to tinker as much with ISAs. At worst, they might stop contributions to new ISAs or drastcially drop the contribution limit. They are unlikely to do this as it would probably fuel inflation on the basis that people are more likely to just spend money if there's less benefit to saving it.

IMV, A SENSIBLE PERSON...

Maximises the free money gained from pension tax relief and employer contributions.

And also saves money into an ISA for a rainy day / the future.

Sensible people also don't make financial planning decisions based on a 15% annual growth rate ;)

NONE OF THESE POSTS IS ADVICE. CALCULATIONS ARE PROVIDED IN GOOD FAITH AND MAY CONTAIN ERRORS (although they've been checked and won't impact the gist).