Member Info for MrMath

Just added £25k's worth. LGEN is now my second largest holding.

Getting extremely tempted to add, although it's already one of my 5 largest stocks.

ULVR doing well lately, so added some more.

"If i sell today will i get both divi and b share money back ? I have 21590 shares"

Definitely no B share money! You have to hold till close on Friday 13th May for that.

If you do hold then, with 21,590 shares and assuming a close price of 442p on Friday 13th you need a close price of about 448.5p on Monday 16th to achieve equality in your investment (with the current advertised consolidation and B share conversion rates).

"Why are people buying at anything above 440p when they will lose 25% of this price and shares on 16 May 22?"

For someone with 5,000 shares, if the price closes on Friday 13th May at 441p they would need a close of about 1.5% higher (447.5p) on Monday 16th May to achieve equality. That's really not that great an increase, and many believe the higher dividend yield will push the price up further. It could well be too late to get in on Monday 16th.

I am holding and was even considering buying more, but it's looking like I should not have hesitated with that thought.

" ... and dealing cost of c=£12.95 ... "

The dealing cost of reinvestment must be taken into account when making a like for like comparison (i.e. invested v invested). There are no dealing costs for you when your capital is returned.

"If I am missing something here, please help!"

I too expect the share price to rise after consolidation which, despite my concerns over the B share redemption value, is why I am holding.

"Their suggestion is share values would not be expected to increase post consolidation, but without it, the B share issue would cause values to go down"

I suspect that for the majority of people that increase needs to be around the 1% mark (close on Monday 16th May over close on Friday 13th May) to achieve equality in their pre and post consolidation investments. The B share redemption value is definitely on the low side: assuming the small 1% increase does not happen and the SP on Monday 16th is equal to the SP on Friday 13th then I need a B share redemption value of 1.05 to maintain equality. In fact, the low redemption value is my main concern.

The capital gain aspect is likely a red-herring for most of us as it's likely to be very small. As I posted earlier you can calculate your capital gain using the formula

1.0169n(1 – u/(1.0169 + 0.76q))

where n is the number of shares you currently own, u is your unit cost (average cost per share) and q is the closing price on Monday 16th May (take a guess). For someone with an average of £4, their capital gain would roughly be about £80 for every 1,000 shares they currently own.

I bought into this fairly recently in July 2019, so saw my investment plunge when covid hit. That said, I'm still about 12% up when you include the dividends. I bought this as an income stock and that's exactly what it has been doing for me. Not really a trading stock. So my answer is, buy now if you're after income and intend to hold beyond the ex-dividend date for NEXT year but look at other stocks if you're after a shorter term profit.

"Just one question from what I read, do holders get the 14.7p dividend 19/5 AND the special dividend still to be voted on paying out at end of May.... we get both?"

Hargreaves Lansdown have stated that they will be paying both on 19th May. Cannot speak for other brokers. When I was with Barclays they routinely paid things late.

Forgot to say, I used u=4.1286 in the capital gain calc.

The value of your investment will hardly change at all (mathematically) due to the consolidation, even your capital gain is likely to be piffling (see below) and covered by the £12,300 exemption. A better reason to hold or sell is whether you think all this is good or bad for the SP in the longer term. I believe it's good and that's why I'm holding. In fact, I'm even considering buying more before the 13th May.

For those interested here's the maths. It's more detailed than the approximation on the AVIVA site. Let

c = Your typical dealing cost (for example £12.95 with Hargreaves Lansdown);
n = Number of shares you own;
p = Share price at close on Friday 13th May;
q = Share price at close on Monday 16th May (first day of trading after consolidation);
u = Your current unit cost (average cost per share).

The value of your investment before consolidation is np, equation (B), and after consolidation it will be

0.76nq + (1.0169n – c)/1.005, equation (A),

where the division by 1.005 is to take account of stamp duty (0.5%) to get our investment back to its previous invested status (note that from a mathematical point of view it doesn't really matter whether you reinvest your returned capital in Aviva or other shares, we are simply ensuring we're comparing like for like).

Equating (A) and (B), setting them equal to one another, we get

np = 0.76nq + (1.0169n – c)/1.005,

and so for this to be a no gain, no loss transaction we require

q = (np – (1.0169n – c)/1.005)/0.76n.

For example, assuming the closing price on Friday 13th May is equal to today's sell price of p=4.341, with a holding of n=2,000 shares and dealing cost of c=£12.95, then q=4.3889. So if the closing price is exactly this on Monday 16th May the transaction will have had no effect mathematically on the value of the investor's holding. Note that this requires the SP to close about 1.1% up from the close on Friday 13th May.

Your capital gain from the returned capital due to the redemption of the B shares is

1.0169n(1 – u/(1.0169 + 0.76q)).

That's £104.62 using the example figures.

Looks a little fudged, as it gave me exactly the same value of my investment before and after, to the penny! The share value after has to be changed to achieve this exact match. Also it ignores the fact that you were fully invested before but now you have to pay costs and stamp duty to get back to your previous status. That said, it's probably close enough for most.

I received an email from Hargreaves Lansdown that implies the B shares money will be paid on 19th May (see below). The 19th May is also the payment date for the 14.7p dividend, for which the ex-date was 7th April. I thought that the B shares money was due to be paid on 31st May. Any thoughts?

Quoted from the HL email (minus some stuff about how to vote):

"Aviva plc wants to pay shareholders some of the proceeds following the disposal of eight non-core businesses.

This will be a one-off payment and is proposed to take place by way of a return of capital. If you hold shares at the close of business on 13 May 2022, you’ll receive a return of capital payment of 101.69p per every Aviva plc share held.

When a company pays a return of capital, it’s normal for the share price to drop by the amount that's returned per share. Aviva wants to keep the share price roughly the same before and after the return of capital. To do this Aviva will reduce the number of shares every shareholder owns. Shareholders will get 76 new shares for every 100 shares held. This won’t make a difference to the overall value of your holding – the total value of your new Aviva plc shares plus the return of capital should be similar to the value of your current holding.

If plans go ahead, we'll be in touch around 14 May 2022 to inform you of your expected new holding. Your new Aviva plc holding will be updated on 16 May 2022 and the cash will be paid on 19 May 2022."

Yes, using 0.76, instead of the 0.74 I used, does gives you a required SP after consolidation of about £4.27, so not very different from today's price. In that case there is little incentive to sell now. Sorry for any confusion, my thinking tends to be a bit abstract with more precise figures only thrown in later. At the moment, I'm just sitting on my hands and tending towards holding, but I am interested to know what the two final main numbers will be. I'm pretty sure they are both subject to change, though please feel free to correct me on that point if I'm wrong.

I don't think either of the two main figures are set in stone. Pretty sure they are just ballpark figures until the meeting in May.

Working with the assumptions that you will receive a £1.0169 for every B share and a consolidation rate of 0.74 let's compare the value of a holding before and after the consolidation.

Using pounds sterling (not pence), Fred currently owns n shares at a share price p (£4.251 on 10 Apr 2022).
So the value of his holding before consolidation is np (n times p). Let q be the share price after consolidation then the value of Fred's investment after consolidation is

0.74nq + (1.0169n – c)/1.005,

where c is the cost of buying new shares, to get Fred's investment back to its previous invested status. We divide by 1.005 to take account of stamp duty. Note that is doesn't really matter whether Fred reinvests his return capital in Aviva other shares, he still has to pay stamp duty and cost of buying.

Let's label these two amounts (A for After and B for Before)

(A) 0.74nq + (1.0169n – c)/1.005

and

(B) np.

What we are interested in is the relative sizes of (A) and (B). So by setting them equal to each other we can play around with the share prices and help advise Fred what he should do.

np = 0.74nq + (1.0169n – c)/1.005.

Dividing both sides by n gives

p = 0.74q + (1.0169 – c/n)/1.005.

Note that the term c/n on the RHS (right-hand side) will probably be small. A purchase with Hargreaves Lansdown is likely to cost Fred £12.95, so c = 12.95, and if Fred owns at least 1,089 shares then that second term after the plus sign will lie between 1 and 1.0119, which shows that for the purposes of estimating what Fred should do we can consider the simpler equation

p = 0.74q + 1.

Using today's price p = 4.251 gives q = 4.393. (Note that even if we use the 1.0119 figure we get q = 4.373, so our approximate equation works very well whatever the size of Fred's holding.)

To sum up, with a consolidation rate of 0.74 and a payment of £1.0169 for the B shares, Fred is likely to lose money by holding onto his shares if the share price after consolidation does not increase by at least 3%. Ok, it's not a massive loss, but it's still a loss. The payment for the B shares seems a little too low to me. Maybe that, and/or the consolidation factor will be changed at the meeting?

"the price will be temporarily higher at the time of the scramble leading to a fall back"

I agree that the price will rise just after the consolidation, which will lead to a small retrace but not down to the current levels. There is no way I'm selling now. You could use your returned capital to diversify as well as buy back some of those you lost, but if you diversify better be sure to pick something that has at least the future growth potential of your consolidated AVIVA shares.

"Rotating the idea of taking some off table. Welcome ideas of good shares which price has drifted."

Don't take too much off the table! AZN, along with DGE, just grind their way up over time while paying dividends in the 2% ballpark. They are the backbone of my 'safe and solid' strategy. Shares to hold until the grave ... but spend the divis if you must!