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"And while it's a distribution of value and not a creation of value"

It is a creation of value in so far as you are buying expected cash flows for less than their fair value. The accounts of course portray the transaction merely as a distribution of course, but to anyone trained in interpreting accounts properly, a buyback is not merely a distribution: you are still appear to be suffering from buyback syphilis, and you have even infected one or two of the better posters here, apart from giving our Board the green light to do buybacks at any old price.

Next you will be telling us light emanates from our eyes because it goes dark when you cover them, and that the sighting of an iguana with a missing leg is proof of the fixed creation theory because there are no 3 legged iguanas in the fossil records. It's time you acknowledged that experienced investment professionals like Buffet, Terry Smith, etc. are correct on this issue, namely that buybacks can create value as well as distribute it, but they only create it if the shares are bought back below fair value.

Giving up the cash and sharing the expected returns from the bought back shares among the remaining shareholders is primary school reception class stuff, except they use sweeties or tiddly winks counters to demonstrate sharing. Are you in denial that a sharing process takes place as well?

"But, first of all, GKP has no debt. Secondly, I don't understand what you mean by " equity base".

Agreed GKP has no debt, but the accounting treatment of buybacks is not decided on the basis of whether GKP has debt or not. UK law does not allow new shares to be issued below par value (as I understand it, you have to go to court and get permission from a judge to reduce the par value of shares if your share price drops below this and you want to raise new capital - the judge or court intervenes to make sure that no one class of stakeholders (lenders or shareholders) in the company is disadvantaged unfairly by a capital reduction. Buying back shares is maybe a form of capital reduction, so you have to create a non-distributable reserve (usually called a capital redemption reserve to match the reduction in total par value of the shares bought back, and removed from the share count, whether by cancellation or by putting them into Treasury, but since the asset side (the cash) has fallen after a share buyback, the total sources of finance (debt + equity) has to fall by the same amount, but since you have created a capital redemption reserve to preserve a minimum total par value despite removing the shares completely from the share count and therefore from the sources of finance, the balance sheet won't now balance, so you 'pay' for the newly created capital redemption reserve by reducing a DISTRIBUTABLE reserve, out of which you would pay normally dividends, a reserve perhaps called "retained earnings", by the total par value of the shares bought back, so then the total sources of finance will match the assets.

The whole point of all this is to stop shareholders ripping off debt financiers by not just distributing all the accumulated profits, but also distributing the original founder's capital put up to start the company (selling off all the company's assets and distributing the whole lot to shareholders, leaving the nothing for the lenders because the equity base or assets the lenders looked to, to repay their loans, have been sold off and paid out as dividends.

The UK has laws about what a legal dividend is, and it has to be paid out of distributable reserves like retained profits, not out of non-distributable ones.

I haven't mentioned the share premium account (I assume it is, ordinarily, a non-distributable reserve which increases by the premium new shares are sold for above par value). But I am sure I have come across cases where companies apply to courts to distribute it under certain circumstances, but again they need permission from a judge, I expect. It is a long time since I passed exams in all this stuff (Stock Exchange Interpretation of Company Reports and Accounts) , and I am not an accountant or a lawyer, but common sense dictates that shareholders must not be able to fleece lenders by paying themselves excessive dividends (illegal ones) or by doing illegal buybacks that achieve the same effect. Hope this helps.

"Nobull still thinks the company owns its shares after they've been bought and cancelled."

The balance sheet would not balance as between assets and their sources of funding when the net assets drop regardless of whether the net assets drop for dividend being paid out or for a buyback.

In the case of a buyback where the shares are not cancelled but put into Treasury, that source of funding has to be removed from the balance sheet to match the loss of cash on the assets side, but as the shares no longer exist on the sources of funding side, you are correct that they are no longer owned in the sense they can't be voted on or received dividend, but a common sense view suggests the can have a loose ownership in that they can be put back into the share count any time by distributing them or even selling them at a higher price than they were bought back at.

I don't have any problems understanding it now. I don't suffer from buyback syphilis. Of course when buybacks are done it isn't quite as simple as removing the shares bought back from the share count (aka sources of funding) whether cancelled or put into Treasury, because debt financiers have to be protected from a dwindling equity base, so a capital redemption reserve has to be created on the sources side of finance side that is equivalent in magnitude to the nominal or par value of the shares put into treasury, and this charged to the retained profits source of finance. I get it that in the accounting sense, the bought back shares put in to Treasury are not "owned", but in a common sense way they can be considered to be loosely owned (albeit with none of the rights of ownership except the one to distribute them back into the share count with the full ownership rights at a later time. I am glad you now accept that buybacks need to be done below fair value and in that sense are not always a value-neutral distribution even if the accounts make it look like they are. Whether they are or not depends on the price that was paid even if the accounts don't care about the price paid.

A perfect time for a buyback?

1. On the grounds of valuation: yes;

2. On the grounds of the importance of preserving liquidity when we have low business predictability (see our snowflake diagram on Marketscreener): no; (low business predictability to me means there is quite a high risk of expected future cash flows differing from actual cash flows achieved what with the risk of payment defaults, contract revision, exchange rate and oil price volatility)

3. On the risk of the exact same amount of cash expended on buybacks having later to be raised by issuance of a greater number of shares than were bought back (destroying shareholder value by dilution):no;

4. On the grounds of doing the opposite to what the herd are doing and on it being very hard to part with the cash (because of 2 and 3): yes;

5. On the grounds of tax efficiency and genuinely having surplus cash (not having any debt): yes.

Overall, no objections to buying back 10m shares at £1 or less on the assumption cash coming in from local sales can reasonably be expected to roughly match monthly outgoings.

While paying more than that or buying back more than that might suit some people (especially those with buy-back syphilis, a disease where people become over-invested in the power of the accountancy profession to describe reality correctly: they believe because the net assets of a company drop in the same way as they do for a dividend leaving the company that a buyback is just a value-neutral distribution . A buyback can be eps enhancing at the same time as destroying shareholder value, for example if the multiple of earnings drops at the same time e.g. due to more dilution risk having to be priced in due to too much debt replacing the company's equity, for the multiple of earnings can drop the share price more than enhanced eps increase it.

Like sex offenders, people with buyback syphilis are very hard to cure: they disrespect Warren Buffet's views on the subject; they refuse to take their medicine (Phil Oakley's article in Investors Chronicle on how buybacks can destroy shareholder value if done at the wrong price), and like all members of cults they need to be deprogrammed by repeatedly confronting them with their disorder.

P.S. there is a related disorder: buyback gonorrhea where the sufferer has been badly advised (probablly by someone with buyback syphilis?) and calls the buybacks value-accretive when the actual cash flows achieved fall short of the expected cash flows at the time the buybacks were done. I am not sure what value-accretive means, but it could mean the IRR > 0% but that could still be shareholder-value destructive if the IRR < the weighted average cost of capital.

Just my thoughts.

'Iranian influence in Iraq and several other local countries is aimed ultimately at promoting their religion'

I think promoting the religion is more about the leadership in Iran holding on to the incredible supernormal profits the immense natural resource wealth of Iran generates. The last thing the leadership wants to do is spread that wealth around its subjects because they might become too decadent and too 'West-toxified': better to promote larger families of impoverished, uneducated Iranians who believe every word their government spouts and to outpopulate Saudi Arabia even more than they already do.

Promoting the religion is maybe more about bolstering the legitimacy of the regime (to cling on to Iran's incredible natural resource profits), I wonder? When the regime is God, it maybe is a tad more difficult to protest against it (you end up in court accused of waging war against God, if you complain, right?).

The brutality doled out to 'improperly' hejabbed school girls is maybe a measure of how desperate the regime is to cling on to those supernormal profits, for these students are a visible poll of discontent, which undermines the regime's propaganda, and, from the regime's point of view, are evidence of a 'corrosive' interest in Western traditions (including democracy),

Those supernormal profits have to be spent on stopping people taking poodles for a walk in the park , stopping them listening to Rod Stewart "Do yah think I'm sexy" on a ghetto blaster in Teheran's parks, stopping teenage boys and girls having water pistol fights, stopping them wearing tee shirts with "I love New York" on them, and stopping men having mullet hair-cuts. It is maybe all about stopping these activities occurring in neighbouring Iraq too, I wonder, and getting Iraqi politicians to stop wearing (neck) ties.

And the best way to go about it from their point of view? Bribe Iraqi politicians with all those supernormal profits - not hard to do - and it helps preserve the brutal Iranian leadership as well as helps Iran to dominate the region, I wonder?

The West in allowing exiled Iranian TV stations like Manoto (me and you) to broadcast news read by unhejabbed female newsreaders must really wind up the regime, as do broadcasts of pop concerts, Wimbledon tennis, etc. So getting rid of American influence in Iraq is just step one: they need to get rid of the entire Western world to feel secure. The men can't feel secure unless they have superior earning power over women, which means men have to be given all the best jobs. It's all very sad.

"Overpay for What?

For an entitlement to an expected stream of future cash flows. They have a value. That's usually why a share is worth more than zero. When the shares are bought back and cancelled, or held in Treasury (it makes no difference), the entitlement to ownership of those expected future cash flows is distributed or shared out among the non-bought back shares. If the bought back shares are worth less than the cash paid for them, the bought back shares subtract from the value already owned by the non bought back shares: previously the non bought back shares had an 'ownership' of the cash, and in its place has been substituted instead an entitlement to an expected stream of future cash flows which may turn out to be worth less than what was paid for them. Of course you have adjust the future expected cash flows to present value to make a comparison the price paid for them, causing a loss of shareholder value.

You seem fixated on the accounting treatment, which of course does make it look like a value neutral distribution, as you say, but nobody is interested in time slicing the company's investment performance over a nano second holding period return.

The problem of the actual cash flows differing from what was expected is a different problem: you buy shares on expectations of future cash flows, not with hindsight knowledge of what the future cash flows actually were.

All sensible people accept one must not overpay when buying back shares otherwise you destroy shareholder value (not obvious from looking at the accounting treatment of buybacks).

It also isn't obvious from accounts if we get richer from our share price rising due to the risk free rate of return falling (the 5 year gilt yield or T-Bill yield), but because this is a component of our WACC, when it falls, more shareholder value is added for a given set of expected cash flows, meaning our shares, all other things being equal, can trade on a higher multiple of earnings. The accounts are not there to give a blow by blow account in minute detail of how we get richer or poorer. The accounting treatment of buybacks is abominable: it makes it harder for shareholders to understand why they are getting richer or poorer, but there is a good reason why accounting standards bodies like this treatment: it is hard to argue with but it doesn't give shareholders the full picture, just as the accounts don't tell us why we can trade on a higher PE ratio if gilt yields fall later this year.

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