Member Info for TheTrotsky

Hi Hitman, Obviously I'd like the share price to be in excess of £5 but I now struggle to believe that AV will be trading at such a premium relative to its peers (LGEN and PHNX). Having gone ex-div today, LGEN is currently trading on a dividend yield of c7% and PHNX is trading on a dividend yield of c7.8%. A price of £5 post consolidation would imply a current yield of c5.8% and a prospective yield of c6.2%. I think that premium is a bit rich; Blanc has shown that she can act decisively but has yet to show that she can grow the remaining businesses. It also shouldn't be forgotten that both LGEN and PHNX expect to be able to increase their 2022 dividends by low single digit percentages; so I don't read as much into AV's prospective yield. I think a price pre/post in the range 460-480pps more likely but nothing is certain.

LTI, On re-reading, I appreciate that my semantics weren't strictly correct. I was referring to the transaction as whole being a de-facto dividend. You are right to say that the consolidation, in itself, is not a dividend but as I've outlined in my previous response, a capital dividend does necessitate an issue of new ordinary shares with a different nominal value (the "capital reduction"). In practical terms, capital reductions of this nature don't generally have much bearing unless there is a winding up.

LTI

"Consolidation has nothing to do with the return of cash sitting on the balance sheet"

Essentially there are two methods of returning cash direct to shareholders:

1) An income dividend; or
2) A capital dividend

The only real difference between a capital and income dividend from a shareholder perspective is the tax treatment; the former is potentially subject to capital gains tax whilst the latter is potentially liable to income tax. This generally has a lot more bearing for US investors than UK investors.

A capital dividend (return of capital) necessitates a capital reduction in some shape or form. You don't necessarily need a consolidation BUT you do need to replace the existing ordinary shares with an issue of new ordinary shares with a different nominal value (you can't simply apportion part of the existing capital to the B shares).

So, in that respect, the consolidation has everything to do with the return of cash. Can't have a capital dividend without an issue of new ordinary shares. So, if you have to issue new ordinary shares, you may as well consolidate! Simples ;-)

As an addendum, I would say that I am reasonably relaxed about AV's share price at the moment. At c278pps, LGEN is today currently trading on a dividend yield of c6.6% whereas AV at c440pps is also currently trading on a dividend yield of c6.6% (and a prospective dividend yield c7%), if our working hypothesis is that the share price of AV's existing shares will be the same as the share price of AV's new shares post consolidation. On that basis, AV's current share price is not currently out of kilter with LGEN's and still, in my view, has some scope to move to a "premium".

If AV's share price should reach c480pps before 13 May I would consider selling (unless somebody can justify why AV should currently be trading at an even higher premium to LGEN). As I say, I think AV does warrant a premium to LGEN (and PHNX) but would start having some reservations if the share price continued to rise such that AV's dividend yield fell below 6% or if the potential yield gap between the AV and LGEN became more than (say) 0.5%.

We are now trading at a price lower than before Covid albeit that we three years closer to start seeing revenues from our actual business rather than our sideline. Says all you really need to know about this market; no perspective.

Pete, I'm not ramping the price. I notice that you've made absolutely no effort to answer the questions. What is the basis for any of your figures? Are you suggesting that LGEN warrants a premium share price to AV? It's quite clear why you want the share price to fall you Janus!

We none of us have a crystal ball and knows for certain what will happen to the share price after 13 May but only a fool would not be willing to consider all potential scenarios, so I present to you the False Yield Hypothesis.

There's a (not unreasonable) school of thought out there that says all, or part, of the "dividend", whether capital or income, was priced into AV's share price prior to the issue of its results on 02 March and the announcement of the return of capital and share consolidation (the "capital dividend"). The closing price on 01 March was 406.60p which implied a dividend yield of c5.2% (based on 21p dividend paid for the year ended 31 December 2020). On that same date LGEN and PHNX, AV's two closest peers, were trading on implied dividend yields of c6.8% and c7.9% respectively (on a comparable basis).

As has already been discussed, Blanc has done well to clear the decks but the jury is still out on whether she can now drive the remaining businesses forward. So, the question then becomes whether Blanc's efforts to date warrant AV's share price trading at a premium to its peers. Personally, I think a premium to its peers is warranted but would question whether AV currently warrants such a low (implied) dividend yield and would suggest that a (theoretical) dividend yield of between 6% and 6.5% might be more appropriate (relative to its peers), and that the discrepancy between the implied and theoretical yields can be explained by the "capital dividend".

So, where does this all get us? Well, the implication would be that between now and 13 May AV's share price ought to tend towards its opening price on 16 May (assuming that there is virtually no change between the cloisng share price on 13 May and the opening share price on 16 May). QED at c440pps AV on 16 May would be trading on a current yield of c6.6% and a prospective yield of c7% (based on equivalent current dividend per new share of 29p and a prospective dividend per new share of 31p).

Personally, on the basis of the false yield hypothesis, I think the share price still has scope for further "improvement" and that it would not be wholly unreasonable to suggest that the AV share price could be approaching c480p before 13 May (implying a current yield of c6% and a prospective yield of c6.5%). Obviously this all assumes that all other factors that might affect the share price remain constant.

Retirment, Here's are two questions for you. 1). What price would you pay for an Aviva share TODAY on the basis that the company planned to pay a dividend 23.56p per existing share for the year ending 31 December 2022 (76% x 31p per new share)? 2). What price would you pay for an Aviva share on 16 May if Aviva was instead returning c102p per share as a special dividend and still planned to pay 23.56p per existing share for the year ending 31 December 2022?

I appreciate that the dividend is not guaranteed but what dividend ever is (there are always caveats).

If you were willing to pay c440pps today (a prospective dividend yield of c5.35%) would you really expect to pay c338pps on 16 May (a prospective dividend yield of c6.97%)? Bear in mind that the proposed consolidation is a de facto dividend (it's effectively a capital dividend rather than an income dividend).

ML111, The 30 day rule doesn't necessarily avoid CGT on your disposal. Normally when you buy shares the costs are pooled e.g. if you've bought 10,000 shares in several different tranches over a period of time and then you choose to sell (say) 5,000 shares your cost of disposal for CGT purposes will be your average cost of acquistion (5,000/10,000 x total cost). However, if you sell and repurchase shares within 30 days then the sale and repurchase are matched i.e effectively the cost of disposal of your original shares becomes the cost of acquistion of your repurchased shares (whether you make a capital gain or loss will depend on whether your cost of re-acquisition is higher or lower than your sale price). The rule was introduced to stop people benefiting from "bed and breakfasting" to utilise their annual CGT allowance (the rules do not affect "bed and ISA" transactions).

This is isn't a bad explanation: https://www.investmentguide.co.uk/capital-gains-tax-30-day-rule/ but ignore the comment about the exact same number of shares (that's inaccurate). The 30 day rules still applies if you sell (say) 10,000 shares and buy back (say) 9,500 shares; 9,500 of the shares will be matched for CGT purposes whilst the remaining 500 are deemed to be sold from your "pool".

From a brief read, as far as I am aware the current shares and the new shares are treated as being of the same class, despite having different nominal values, because they have the same rights attached (so the 30 day rule should apply) but it might be worth double checking.

drukensod, You make this sound like a negative. In principle, AV have announced that they not only plan to increase their dividend per share by about 6.85% from 22.05p for the year ended 31-Dec-2021 to 23.56p for the year ending 31-Dec-2022 but also plan to maintain their total dividned payout. As a result, there will be a c.40% increase in the dividend paid on the new shares for the year ending 31-Dec-2022 as compared to the dividend paid on the existing shares for the year ended 31-Dec-2021 i.e. rather than pay 23.56p per existing share they will be paying 31p per new share.

Trillsg, Don't disagree but marketing people aren't always the most financially astute (as witnessed in the Hoover case). As long as DV cover, or at least limit, their costs then I'm all for a marketing initiative like this.

Pete, I suggest that you re-read those RNS's and TR1's. They all relate to shareholdings that Aviva has in other companies (as part of its investment business), not the other way round. The key is to read who the issuer or discloser is.

Realist, Today the share is yielding about 5.48% and from 16 May (assuming the same share price) it will be yielding about 7.21%. That doesn't strike me as bad value. It seems to me that your main argument is that history shows us, more often than not, that share prices go into reverse after consolidation (in part because the shares become overbought in the run up to consolidation). However, most consolidations involve a (planned) pairing back in both earnings and dividends. Obviously there are other external factors that could still come into play but I don't believe that this consolidation is similar to most other consolidations. Given the share price before the results announcement and allowing for the higher yield, I think it's highly unlikely that the share price will open below 443p post consolidation (an implied yield of about 7%) all other things being equal.

GRIO is now trading at about a 33% discount to its adjusted NAV (based on the presumption that GRIO will have to meet all of its remediation costs and won't be able to recover any of its costs from tenants through higher rents over time). One has to wonder whether now is the Darkest Hour and whether it's time to buy again or run for the hills.

C.Trader, People don't seem to believe that value can be "conjured" out of thin air. How can a company that's currently deemed to be worth X suddenly be deemed to be worth Y, where Y is greater than X, simply because of a return of capital and share consolidation? Discounted cash flows (DCF) and the time value of money offers an explanation as to the why and, if you are willing to accept DCF explanation, then the logic for the share price to rise after consolidation, because of the yield, becomes irrefutable. In the case of National Grid and Tesco, they were offering to pay the same dps before and after consolidation whereas AV is offering to pay a higher dps. The return of capital does not affect AV's dividend plans one iota; AV is planning to pay the dividend out of income. Also, if there are concerns over whether AV can afford to pay this dividend, those concerns are the same before as they are after the conslidation i.e. those concerns are already reflected in the current share price (they won't suddenly materialise after the consolidation). It will be interesting to see what happens on 16 May.

Great marketing but I do hope they've put a limit on the number of free kits they plan to give away. Seven million is a lot of free kits! Wouldn't like to see another Hoover debacle. Also, I wonder what the members must think. Do they get free kits?

Devon, I believe I did speculate in an earlier post that the dividend might be reduced slightly (the 31.5p was based on the original example given in the results of a 75 for 100 consolidation, rather than a 76 for 100 consolidation) but I missed the amendment in the circular. I apologise.

However, I would reiterate that the dividend pot is fixed (and that's why they've adjusted down the dividend slightly); AV have committed to paying a minimum annual dividend (barring exceptional circumstances) which equates to 31p per new share or about 23.56p per existing share (about a 6.8% increase year on year). That was the whole point of the statement in the results; they were telling the market (and any PIs who would listen) that they do not plan to scale back their total annual dividend payment following the share reduction i.e. they plan to pay about £869m regardless (I suggest that you compare that to what National Grid and Tesco did; they scaled back their total annual dividend payment such that the dps before and after consolidation were about the same).

I would also point out that AV is doing a capital reduction by way of B shares and, for that to be effective, they are required to reduce (rather than increase) the number of issued ordinary shares (that's why it's called a capital reduction). If AV, based on their stated commitment to pay about £869m of dividends in 2022, aimed to keep the dps the same post consolidation they'd actually have to increase the number of issued shares.

I fully appreciate the comparability point on a "value for value" basis but, nevertheless, without a subsequent bonus issue (which would not be compatible with a capital reduction) you still have an existing share yielding X% on Friday and a new share yielding Y% on Monday, where Y% is (significantly) greater than X%. AV cannot "fix" this; they can only let the market find its level and, as I've already said, if AV was a gilt the share price post consolidation would be expected to rise such that Y% would tend towards X%.

Finally, I would dispute your assertion that "IT IS THE ENTIRE REASON THAT THEY ARE DOING A CONSOLIDATION AND NOT A SPECIAL DIVIDEND!!!". I think you'll find that National Grid did exactly that. AV are doing a capital reduction by way of B shares for TAX REASONS!!! US shareholders, in particular, prefer capital rather than income returns. AV could have achieved the same end by doing a special dividend followed by a capital reduction but the tax outcome for shareholders would have been different. DOH ;0)

Hitman, I think Devon is postulating that the share price after the consolidation will ultimately be at or around the same level as it was before consolidation (with an initial dip before it settles back over a period of time) based on his previous experiences. The rationale for this being that the number of shares in issue is being reduced to "take up the slack" and I don't think that's an unreasonable assumption if all factors were the same. However, as I've endeavoured to point out to Devon, in his previous experiences (National Grid and Tesco certainly) the companies were looking to reduce their future dividend payouts to align them with their expected (reduced) future income whereas AV has already rebased its dividend and is looking to maintain its total dividend payout. Now it's quite possible that many PIs will not have grasped this but I doubt that larger investors would miss the opportunity to load up if the price of the new shares is mis-priced at opening on 16 May i.e. if the market was quite willing to buy a share at (say) 6% yield on Friday it would be looking a gift horse in the mouth if it didn't grab the opportunity to pick up the new shares at (say) 8% yield the following Monday. That's why I think the price will be bid up in the opening auction and the opportunity for us lowly PIs will never see the light of day. I'm not saying that, if the shares were trading at a 6% yield on Friday, the new shares will open at a 6% yield on Monday but, barring any major events over the weekend, I think the opening share price would be much closer to a 6% yield than an 8% yield.

Devon, Your maths doesn't add up. Firstly, I'm not aware that AV mave made any statement to the effect that they want the same share price pre and post consolidation (it would be virtually impossible unless the share price was 423.7083333*p on 13 May). Secondly, assuming the existing shares were priced at (say) 424p on 13 May then they would be trading on a future dividend yield of about 5.6% (23.94p/424p) whereas on 16 May the new shares would be trading on a future dividend yield of about 7.4% (31.5p/424p).

This is why I say this consolidation is not comparable to National Grid and Tesco. AV have fixed the dividend pot (at least for the next two years barring any currently unforeseeable internal or external factors) and by reducing the number of issued ordinary shares the dividends per share is being increased (National Grid and Tesco wanted to reduce the dividend pot and keep the dps the same). I'd actually go further and say that if AV intended their shares to trade at, or around, the same level after consolidation they'd actually have to increase the number of issued shares.

PS. If AV shares are trading at, or below, 423.70p on 13 May then the "value for value" price on 16 May will be lower i.e. if AV closed at 400p on 13 May then the opening price on 16 May would be about 392.51p (this assumes the value of your shares before equals the value your shares plus cash after) but AV would then be trading on a forward dividend yield of about 8% (31.5p/392.51p) as opposed to about 6% (23.94p/400p) before.

If AV was viewed as a gilt, logic says the opening price of the new shares will be, must be, higher but nobody can ever accuse this market of being logical ;-)

One minute we're looking as if we are going to breach £14 the next minute HSBC issue a hold recommendation (from buy) with a higher target price and we are down 4.6%. Bonkers!