Member Info for Meconopsis

“Better a bird than a lama.”

It took me until now to realise what you said there. Well said!

I am so dense sometimes!

"There is no such thing as a "safe" stock.....all stocks carry risk ..it is merely that some stocks are less risky than others"

Well said.

And I think we should be clear, the reason for today’s drop is me having bought shares yesterday!

If you’re a trader, which I’m not, then these are the type of days you live for.

SVB is like any other bank in that it relies on deposited money from one customer providing day to day liquidity to other customers. The surplus is usually invested in “safe” government bonds. The issue with bonds is that they have a fixed value at the beginning and end of their term, but the value can fluctuate in between.

SVB’s specific issue is that it deals with lots of startups who rely on VC funding. Those VCs has slowed the rate of investment - so far less money than projected has turned up to provide day to day liquidity.

It’s different from most (but not all) banks in that it relies on money coming in from a relatively small group of VC companies - whereas the day to day spending is by a large number of small, typically loss making startups.

Simply stated, the normal rate of VC money coming in has slowed down to the extent that they became forced sellers of bonds.

They might have been trying to be over-clever with the bonds and been trading them.

I don’t know US banking rules, but UK rules don’t allow our banks to “trade” with customer money.

My view is that, at $19bn, the Fed will step in and take the bank over.

The Daily Mail goes into a little more detail - https://www.dailymail.co.uk/news/article-11841715/Turmoil-Silicon-Valley-Bank-triggers-market-panic.html

The bank deals with lots of small startups who rely on venture capital money turning up regularly. The bank misjudged its liquidity requirements and this was driven by VC investment rates decreasing. The large amounts of VC money coming in for one company normally provides the liquidity to pay out the day to day requirements of its customers.

“This may be simplistic but the headlines are about a loss yet the dividend was increased.
Those two don't seem to ideally fit together, what am I missing ? So different to direct line.”

The accounting standards now require that companies account for unrealised profits and losses from their investments in their reported profits.

There are lots of good reasons why this should be the case, BUT it does require investors to do more homework. For example, Berkshire Hathaway’s last reported profit is very negative because Apple’s share price is down 20%(ish) percent. That “loss” affects top line profit - even though the shares haven’t been sold and the loss hasn’t been realised. Warren Buffet now prefers to look at Operating Profit as a metric as it (typically) excludes investments.

This is one reason why Dividend Cover needs to be considered very carefully. One of my holdings, PHNX, reported a loss last year and still paid healthy, sustainable profits. Operating Profit was very positive, but headline profit was dragged down by a paper loss on investments.

@Andymilman - I agree with you.

I suspect it’s the lack of sex appeal. (L&G’s, not yours!)

Honestly. It’s a (seemingly) boring company doing what it does quietly well. I say “seemingly” because - at some point - the market will wake up to the annuitised assets in LGC rolling over onto the balance sheet. But that’s a way off.

At the moment the company is weighed down by a macro environment where fiscal policy is unstable. And working out annuitised cash flows in an unstable fiscal environment ain’t no fun.

In the meantime, I’m on a 10% yield on my original investment and am treating it as a pseudo-annuity with a limited asset downside. (There’s no better place to buy a pseudo-annuity than a company that sells annuities for a living.)

Not the most exciting read, but...

https://www.ii.co.uk/news/earnings-preview-ubs-eyeing-phoenix-group-ma-firepower-cash-targets-al1678378846816623200

Both Aviva and M&G announced today - Aviva with strong results and M&G with "it could have been worse" results. Both positively received. But hard to read across a 2.0-2.5%(ish) bump in results both of those to 6% here.

The PDMR yesterday was for 15 shares each - so hardly anything to make investment decisions on!

Volumes don't appear to be that high.

@Gerry557 - not sure on the confusion, but 52p if you’re working out your yield.

It’s worth noting that the yield published by financial providers usually excludes special dividends - so they will tend to use the 37.5p number. This is because special dividends are usually used for on-off distributions of capital back to shareholders - such as when a company disposed of a business unit and has no use for the capital. Admiral, and some other companies, seem to use the approach of having a lower normal dividend that they aim to grow with a special to return annual excess capital.

Has anyone spotted anything underpinning the strong SP movement today?

Your view on the buyback versus a special will probably be driven by your holding period. Personally, I’d prefer a long term, ongoing kicker of 2-3% in the ratios and (potentially) dividend than 10p(ish - quick calculation) in my pocket now.

Director targets, if they include EPS would be typically rebaselined to net out the effect of the buyback.

The results announcement contains a subtle tweak to the dividend policy. There is now a commitment to grow the dividend at a low- to mid-single digit growth rate.

There is a cap of 100m shares, so translates into a maximum 3.5% of the outstanding share capital.

Around 65m shares at today’s prices - so around 2%.

“As ever, LGEN is hard to beat for yield, which is why most people buy.

If you're waiting for appreciable growth, however, you'll probably be dead before it happens. The average sp has barely moved in the past 8 years.”

Another lens on this is that total shareholder return has been 600% over 10 years.

One problem with being share price obsessed is fails to appreciate the compounding effect of dividend reinvestment.

LGC is actually the crown jewels here - and not yet appreciated for what it is / will be.

As part of the “inclusive capitalism” piece, L&G are building socially useful assets that pay a rate of return. Stuff like student accommodation and social housing that pays an income. This underpins a batch of annuities - with a margin made on the difference between the income and annuity.

The clever bit is that - at some point - the annuity obligations are discharged and L&G still own the asset.

LGC currently has £28bn of such assets.

Walk around that.

Cause for optimism I'd say:

Turnover up 5%, but impact of increased costs means net revenue down 4%

Number of customers up 11% - 8% in UK and 13% internationally

https://www.londonstockexchange.com/news-article/ADM/admiral-group-plc-reports-resilient-2022-full-year-results-against-a-backdrop-of-high-inflation/15865949

A good set of results IMV - every key measure up, except LGIM assets under management.

The Solvency Ratio is likely to result in calls for a capital return from the larger institutional shareholders.