Pokerchips, I think you might be right, it will make the book value of the company look lower, it roughly halves equity. I assume the double entry is something like Dr Equity Cr Deferred income, then the deferred income gets unwound over the life of the contract. It will make return on equity look a lot higher as well.
My opinion is still that this has no real bearing on the business, it's just a change in accounting methodology.
It's just accounting changes rather than cashflow changes so if the share price has dropped because of the RNS, it shows how inefficient the market is. However there were a few bits that stood out to me:
Lower profit due to deferral to balance sheet and release over time:
"IFRS 17 also introduces a more stable and predictable profit profile through the CSM release. For L&G, this benefit emerges through the deferral of new business profit and demographic assumption changes to the CSM, which will then be spread and released into profit consistently over the lifetime of the contract. Historically, these two components have made a meaningful contribution to Group operating profit from divisions. Indicatively, the removal of these two components, with an adjustment to reflect the higher anticipated release from the in-force book, would reduce divisional operating profit by c20-25%.[4] We expect Insurance earnings to grow in a more stable and predictable way from this new base. We are confident in our ability to continue to write profitable new annuity and protection business, and therefore to grow the CSM and related profits over time. Indicatively, writing £10bn of UK PRT per annum would result in 6-7% CAGR in related operating profit over five years. This would be higher if we wrote more than £10bn per annum. We continue to see compelling investment opportunities across all our businesses, providing further scope to deliver growth beyond this level."
Dividends up by 5% per year hopefully:
"The Group set out an ambition at its 2020 capital markets day to grow the dividend at 3-6% per annum to FY24[2]. Whilst dividend decisions are made annually, the Board's aim is to continue to grow the dividend at 5% per annum to FY24.[3]"
Forward guidance solid:
"Consistent with the guidance provided at HY22, we expect to deliver resilient FY22 operating profit growth in line with the 8% delivered in H1 (£1.16bn vs £1.08bn) and FY22 capital generation of £1.8bn."
The great thing about buybacks is that I couldn't care less what institutions do, in fact I want them all to sell out so the company can buy back more shares.
Buybacks being permanent has everything to do with it, it's a permanent increase in the % ownership of the business vs a 1-off cash payment.
That 10% divi increase from buybacks reducing the share count by 10% is permanent without requiring any additional cash after the buyback is completed, along with a 10% increase in the value of any future uplift in dividends, and a 10% increase in the value of the assets which might accrue to shareholders in a sale.
If they can afford to do the same next year as well, and the year after, then this impact keeps getting magnified. Buybacks are fantastic for long term shareholders if a company is undervalued.
I find UK shareholders don't like buybacks for a few reasons, one is that a lot of UK listed companies don't do them on a decent enough scale for the difference to be noticeable, or they just do them for a short period then stop, or the company isn't actually undervalued (see housebuilders buying back stock in 2007).
Share count under 18bn by the new year?
Interesting article: https://www.yahoo.com/news/look-federally-funded-gas-well-050100305.html
When was the last success in the North Sea? I don't just mean i3e, but anyone?
I think when the US is shut a lot of traders take the day off, even if they're not US based.
Interim results out tomorrow.
He comes across as desperate to be liked.
He's the CEO of an oil company, nobody is going to like him whatever he does or says, and the sooner he realises the better.
It's really a question of labour costs, where labour is cheap i.e. China it can be done more cheaply with people.
New Cenkos note, ups price target to 174p from 166p.
Cut the capital budget in half and use the funds for mass buybacks. Turn the low valuation into a positive as the share count disappears.
Another 11m shares gone.
With net debt looking well under control, at what point do they decide that the debt is fine and just start really pumping up the buybacks?
I think there's some short term pain still coming for insurers with inflation affecting claims (see: DLG results today). Long term I like the company and think it's probably the best of the UK insurers.
Whole market is having a good day today. China talking about reopening plus US payrolls seem to be the main talking points.
Last year was ex-div on the 25th on Nov and payment on the 31st of Dec so I would expect something similar.
They need to stop trying to predict their profitability. Nobody can really predict oil and gas prices so why try? Just guide on production and report income after it happens.
The market is also sending a clear signal IMO to boost shareholder returns and reduce investment in growth. Cut the capex budget, leave the north sea, and do buybacks or increase the dividend.
Crikey, what an enormous amount of ignorance.
The price of oil obviously bares a relationship to the investment risk. Sometimes the price of oil is well below the cost of producing it, sometimes well above. It's a cyclical commodity. Oil companies do not control what they sell it at. It's a global market where oil is sold at auction. If oil companies controlled the selling price they would not have been selling it so cheaply in 2020 (or for most of 2015-2019 for that matter).
Petrol stations are about as low margin a business you could possibly get. The price varies with location for a variety of reasons such as varying rents. It's an ultra-competitive business where any customer can very easily drive down the road to the next one, so they have to stay competitive. The price of fuel is very close to the cost of selling it to you, and they make most of their money from selling you chocolate and cigarettes at the attached store.
Guys, these are not arguable points. They're the most basic of investing knowledge, truisms that any first year economics student would be able to tell you. If you actually believe the nonsense you're spouting you should seriously question the sources you get your information from.
Oil companies don't control the price of oil. This is the most basic economics.