Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Thanks ronaldjohn123, I'm glad it made sense. However, surely it answers your question? To put LTI's answer in simple layman's language, if you own some Lloyds shares, and do absolutely nothing, you will end up owning a bigger fraction of Lloyds, and therefore of its profits, than before, as a result of the buyback.
Mike.
I watched yesterday evening's marathon debate here about the benefits, or otherwise, of the Lloyds share buyback programme with interest and sometimes despair.
I have put together a simple worked example, so people have something tangible to look at. It's all in simple steps, with a letter for each step for quick reference if someone thinks it goes wrong at a particular point.
My conclusion is that (everything else being equal) buybacks increase EPS and potentially dividend per share, and if the buybacks are done at below NAV per share, they also increase NAV per share.
"Company A" consists of a factory (which generates the company's revenue and profits), cash, and debt. The company has revenue of £200k per year and profits (after tax) of £10k per year. The company has a policy to pay 50% of its profits as dividends. The company currently has 200,000 shares. The share price is currently 40p.
(a) The Balance Sheet is as follows:-
Asset – Factory (with working capital) valued at £120k;
Asset – Cash of £40k;
Liability – Debts of £60k.
(b) NAV is £100k.
(c) NAV per share is 50p.
(d) EPS would be 5p.
(e) Dividend per share would be 2.5p.
"Company A" then decides that it will use £16k of its excess cash to buy back, and cancel, some of its own shares.
(f) The Balance Sheet would now be as follows:-
Asset – Factory (with working capital) valued at £120k;
Asset – Cash of £24k;
Liability – Debts of £60k.
(g) The number of shares bought back at the market price would be 40,000.
(h) Therefore the number of shares remaining would be 160,000.
(i) NAV would now be £84k.
(j) NAV per share would now be 52.5p.
(k) EPS would now be 6.25p.
(l) Dividend per share would now be 3.125p.
I've checked it all before posting, but if anyone spots a typo that has got through, or thinks it's fundamentally wrong, then the letters should make it easy to point out where it is flawed.
Mike.
meoryou,
Purely from qualitative memory (I hold both BP and Shell), they both cut their dividends at about the same time, near the beginning of the COVID pandemic, but Shell cut theirs more - down to about a third of the previous level whereas BP only cut theirs to about half the previous level. Since then, Shell have increased theirs more rapidly from the "cut" level.
Obviously we have seen the respective share prices behave in somewhat different ways since then - how much that's down to the different dividend treatments, and how much down to other specifics (eg Rosneft in the case of BP) will I'm sure continue to be the subject of much conjecture!
ATB, Mike.
Thanks hardup.
Without doing all the calcs myself, that seems reasonable. It all got a bit lost due to the length of the thread.
Or, "I was wondering when someone would spot that one, Wilson" if you're a Dad's Army fan!
Please keep up the good work.
Mike.
hardup,
Lloyds have said the total cost so far has been £481,153,662-32. Your figure is £505,636,264-02. Where have you got your figure from? That is a mark-up of over 5% on Lloyds' stated figure.
If you're comparing the figures from the same day, and apologies if you're not, how can your figure be right? Stamp Duty on shares is only 0.5%, not 5%.
Mike.
LeeRex, and hardup,
"If no one owned the shares, who gets the Divi?"
Interesting question, but how would such a situation arise?
If a company - Lloyds in this case - creates and issues new shares, then someone has bought them and given the money for them to Lloyds. That "someone" owns them and gets the divi if he/she holds the share at the right time (ie when it goes ex-divi). If the "someone" then sells the share in the market, whoever he/she sells it to, the buyer, now owns the share and gets the divi from it (subject to owning it on the correct date). If Lloyds buys back the share and cancels it, it ceases to exist so the question "who owns the share and who gets the divi?" doesn't apply. The only common exception I can think of is if Lloyds buys back the share and *doesn't* cancel it but sticks it in Treasury. While it's in Treasury, ie until it is reissued, it doesn't attract benefits such as getting the divis and having voting rights.
What other situation were you thinking of?
Mike.
I find it slightly surprising that today (28 March), when in theory the market will be "awash" with some 9.2% more, new, TRIG shares, bought at a discount (to market price), that as I write the share price is actually *up*!
Oh well, one day I might actually understand how the market works...
I'm not complaining, mind, as I did buy a few more in the market while the price was depressed because of the fund-raising.
Mike.
fairdealer20,
Thanks for educating me further about PB. One day it looks as if I'll have to "bow to the inevitable" and get a smartphone.
In the meantime, as I only wanted to do a small top-up and round-up on my TRIG holding, I'll probably just buy in the market while the price is depressed - I'm due to receive a couple of dividends from elsewhere in the next couple of days.
Mike.
Thanks IP3LY for the explanation of how PB works. I evidently didn't read their website properly. However (and please correct me if I'm wrong) you need a smartphone to use PB - being the luddite that I am, I don't have a smartphone so couldn't use it anyway.
Mike.
Paul2566,
Sorry, but I think your 2nd sentence in your 08:19 post is incorrect. It's not a limit of £250, but a minimum of £250. From the RNS announcement:-
"There is a minimum subscription of £250 per investor under the terms of the Primary Bid Offer which is open to existing shareholders and other investors subscribing via the PrimaryBid mobile app.".
Gerry557,
I'm not sure whether you actually go through a broker at all when using PrimaryBid. I haven't used it myself, but I looked at it briefly "last time" and decided that it wasn't for me. It seemed to me (I may have misunderstood, though) that by using Primary Bid you'd end up with various small pockets of shares in Primary Bid which would then involve money, hassle and delay if you wanted to get them moved to your normal broker/platform to consolidate with the pool of shares which was your main holding.
I agree, as an existing holder, that this "disapplication" of pre-emption rights is somewhat annoying, but, as you say, it makes such fund-raises easier for the Company (and shareholders voted for it...). Last year's "Share Issuance Plan" was due to time-expire on 4 March (2022) and still had "headroom" left - I don't know why they didn't use that (or start a new one).
Mike.
AndAnotherThing,
What you maybe overlook is that your "solution" is a one-shot device - use it once, and it's gone. Whereas everything else being equal (which of course is never the case...) using the £2bn to reduce share-count by 4bn is a gift that keeps on giving "in perpetuity" - you can keep paying the extra dividend every year. I appreciate that it would on your figures take some 35 years to break even, but don't forget that it would also apply to the interim dividends.
Mike.
Yes, unfortunately COVID cases in the UK appear to have been rising in the UK for the last 2 weeks or so, and now seem to be rising quite rapidly according to the COVID Dashboard.
https://coronavirus.data.gov.uk/
Also, I monitor the situation in Germany on their own Dashboard (RKI) because my sister lives there, and they appear to be at an all-time high.
Although there's not much about this on the news here any more because of "other matters", none of this is going to be helping market sentiment.
Sorry if anyone thinks this is not relevant on a BP-specific board.
Mike.
fleccy,
"does this signal the end of Putin?"
Possibly, but it could take months or years. Look how long it took for Col Gadaffi's citizens to catch up with him and give him a bloody end, and that was *despite* his infrastructure being destroyed by third parties (ie the coalition). Similarly with Saddam Hussain in Iraq.
Mike.
Theaky,
There are RNS announcements stating exactly how many shares have been bought back, issued on a regular basis.
https://www.lse.co.uk/rns/BP./
As well as stating how many have been bought back, each announcement states what the company (BP in this case) is going to do with the shares they've bought back. Some companies cancel them (ie they don't exist any more), and some hold them in "Treasury" meaning that they could re-issue them at a later date. In the case of the BP announcements at the moment, they say that the bought-back shares will be cancelled.
Also they issue a regular announcement - probably once a month - stating how many shares in total are in issue.
I will leave conspiracy theories or speculation about manipulation to others.
Hope that helps,
Mike.
Theaky,
There are RNS announcements stating exactly how many shares have been bought back, issued on a regular basis.
https://www.lse.co.uk/rns/BP./
As well as stating how many have been bought back, each announcement states what the company (BP in this case) is going to do with the shares they've bought back. Some companies cancel them (ie they don't exist any more), and some hold them in "Treasury" meaning that they could re-issue them at a later date. In the case of the BP announcements at the moment, they say that the bought-back shares will be cancelled.
Also they issue a regular announcement - probably once a month - stating how many shares in total are in issue.
I will leave conspiracy theories or speculation about manipulation to others.
Hope that helps,
Mike.
Well said dicklaw68 and thanks - if I may say so, you're one of the more sensible posters on here.
I say that from the position of someone who has had the financial pain as a BP shareholder through GOM (Deepwater Horizon), the COVID pandemic, and now the terrible situation with Ukraine, but also as someone who also tries to appreciate (if not fully understand) the wider difficult and too often tragic circumstances in which the market operates.
Mike.