Member Info for TheTrotsky

ML111, Don't wholly disagree. I would however say that Blanc has done a lot in 18 months. I think general insurance is seen as a growth area at this moment in time. A lot of insurers have been taking a pummelling over the last 5-10 years so there is a lot less competitive pressure to drive down premiums and, if anything, premiums are expected to rise to help insurers to re-build their battered balance sheets (I bought into Conduit Holdings last year for that reason). However, I'd agree that you need to have the right staff. That said have any of the insurers really done well over the last 5-10 years? High competition, lower premiums and an increase in payouts; most insurers have had their fair share of "anni horibiles". Blanc has more to do but at least she's cleaned the decks in double-quick time (be fair 18 months is farily impressive, especially when you consider that they had to get rid of thier French basket-case); something her predecessors failed to do.

Ace, The growth, or lack thereof, of your pension funds is often dependent on your appetite for risk. A lot of people will have their pension funds invested in what are deemed to be low risk investments and the 2008 financial crisis didn't help, it really pumelled the banks which were the backbone of those low risk investments before 2008. Also, there has been a pivot away from income shares to growth shares in the last 20-25 years and many of these lower risk income shares have been trading at a discount as a result (given the very low bank interest rates over the last 10-15 years, income shares arguably ought to have had a lower dividend yield than they have done). The problem is that a lot of these growth shares are, in reality, a lot higher risk (even if the market chooses to ignore that fact). From the pension providers' perspective they aren't going to be shot if they invest your funds in low risk, conservative investments (even if the returns don't meet expectations) but they'd likely be shot at dawn if they moved all of your funds into higher risk, growth shares and the bottom fell out of the market - a lot these growth shares could easily tumble 90% if they were valued on more normal metrics e.g. profit! I think it's just a reflection of the times (pension funds made easy money in the inflationary 70s and 80s but have struggled since the turn of 2000) but, who knows, inflation has returned with a vengence and perhaps the cycle is about to be reversed (personally I think the demise of income shares has been overdone)

I noted that there were some exceptional redundancy and closure costs; so this issue may already be in the process of being addressed

Devon, Where do you get your 427p on 13 May figure from? I don't follow your logic. If the share price is, say, 450p on 13 May then, using the value before equals the value after basis for comparison, the share price to open on 16 May would be about 458p ([450p - 101.69]/76%). How have you lost on that basis? Obviously nobody knows for certain what the share price will be on 16 May (the general market sentiment seems to change daily at the moment; reliable dividend shares seem to be in the doghouse yet again whilst everybody chases their "pot of gold" shares in Never-Never Land) but there doesn't seem to be any scenario where you will definitely be worse off if the share price is above or below a certain level on 13 May (unless you've already sold and that is your personal breakeven price if you buy back in on, or after, 16 May).

Devon, I'm just saying that National Grid and Tesco had both sold off key subsidiaries which had been contributing to their eps and dps, and that the subsequent consolidations were done with a view to maintaining their share price AND to reflect their lower dps and eps expectations going forward i.e. if they hadn't consolidated their shares their eps and dps would have fallen. AV, on the other hand, has already adjusted its dps to recognise the sale of of its non-core overseas businesses (following the Covid dividend hiatus it reduced its dps to reflect future expectations) AND even if AV didn't now consolidate its shares its dps would in fact rise (on a like for like basis AV plan to increase their dividend by about 6.4% in 2022)! So, yes, AV's return of capital is not comparable with either National Grid or Tesco because key elements are different. The market may (opportunistically) try to drag the price down (like it did after the results) but the metrics do not warrant it and a dps of over 7% (simply on the same value before as after basis) is going to bring in buyers because, unlike LGEN and PHNX, they have already proven that they can continue to deliver (PHNX is saying that it can now start looking to raise its dividend but has yet to prove that it can sustain it).

Devon, National Grid and Tesco are definitely not comparable. Both did a special dividend followed by a consolidation to maintain their share price, dps and eps (because the disposals giving rise to the special dividends were both expected to reduce future earnings and dividend capacity). For example, Tesco has paid the same interim dividend this year as it did last year but there are 21% less shares in issue. AV's consolidation, by comparison, is expected to both increase dps and eps. The former because of the commitment to pay 31.5p per share post consolidation (which represents a 6.4% increase on a like for like basis) and the latter due to the annual cost savings expected to be generated by the end of 2022 and income growth in its core markets. AV is primarily a dividend share and the higher dps will be, I believe, the key determinator of its post consolidation share price. AV may not fully realise all of the benefits of the annual cost savings and income growth in 2022 - the full benefits may not be realised until 2023 - but, in the meantime, has more than sufficient distributable reserves to meet its dividend commitments.

Your "evidence" is a matter of interpretation and a post consolidation share price of sub-400p (implying a future dividend yield of 7.9%+) is, I believe, wishful thinking on your part given that the market has consistently in the last 12 months been pricing AV's shares in the 5-6% dividend yield range. The MMs will set the opening share price on 16 May and demand will likely to far outweigh supply if they set the share price too low. I would expect the opening auction to set the share price at no lower than the sum of the parts i.e. if the share price is (say) 430p at close on 13 May then I'd be surprised if the opening share price was much below 432p (with an implied dividend yield of about 7.3%).

It should be noted that the record date for the B shares is 6pm on Friday, 13 May and the consolidation will take effect from 8am on Monday, 16 May.

Also, for the information of the poster who said that new shares would not be issued, please note that the existing ordinary shares of 25p each will be replaced by new ordinary shares of 32.8947p each (it's in the Circular).

Ace, With an increasingly aging population I think there's room for all of the incumbents to grow without cannibalising each other BUT nothing is certain in life and a dose of caution is not unwarranted. I think the City has been impressed by the way Blanc has, since joining as CEO 18 months ago, cleaned house and refocused AV on its core markets. As a result, they have upped the AV's rating, relative to its peers, over the corrsponding period; they think that Blanc has what it takes to drive AV forward to bigger and better things. So, although I don't personally share your view, a healthy note of pessimism should not be discounted out of hand (it wouldn't be the first time that the City has got it wrong).

Ace, The number of ordinary shares are going to be reduced by 24%. AV has stated that they plan to pay a dividend of about 31.5p per share dividend post consolidation. If AV was intended to pay a dividend of 31.5p for every share pre consolidation then that would imply that they are intend to pay 41.45p per share post consolidation; they won't. The proposed dividend of 31.5p per share post consolidation implies a 6.4% increase on the dividend paid for the year ended 31 December 2021. Simples really ;-)

AceofClubs, The 31.5p per share relates to the new shares post consolidation not the existing shares (this is made clear in the results RNS). Back of the class for you ;-)

As of this morning AV is trading on a forward dividend yield of about 5.6% (76% x 31.5p = 23.94p; 23.94p/427p = 5.6%).

If the consolidation were to occur at today's closing price (say 427p) and we were to assume that the value of AV before the consolidation equals the value of AV after the consolidation then the opening price of the new shares tomorrow might be expected to be 428p (427p - 101.69p = 325.31p; 325.31p/76% = 428p).

However, AV would then be trading on a forward dividend yield of about 7.36% (31.5p/428p = 7.36%). I think this scenario is highly unlikely. I think the MMs would set the opening share price (a lot) higher. I'm not saying that the MMs would set the opening share price at 562.5p (which would imply a forward dividend yield of about 5.6% as it is today) but I'd be surprised if the opening share price would be much lower than 500p (which would imply a forward dividend yield of about 6.3%).

Obviously nothing is guaranteed and between now and 16 May the share price may move up or down depending on both external factors (e.g. war in Ukraine, recession, inflation etc.) and internal factors (e.g. current trading expectations, changes in future dividend expectations etc.). So, I'm not going to say that if you choose to sell today that you would be definitely worse off come 16 May but, based on the information we have today, if all factors remain the same then I think it's highly unlikely that AV will be trading sub-400p and more likely that AV will be trading at 450p+. None of us have a crystal ball that will allow us to accurately predict the future economic environment and what impact that might have on AV's share price but, if you are a long term investor, I do not see any compelling logic to sell AV before consolidation in the hope of getting yourself a bargain after consolidation.

https://www.science.org/content/article/seawater-could-provide-nearly-unlimited-amounts-critical-battery-material

It certainly seems feasible. DVRG's membrane plants are primarily being used to create drinking water from saltwater and the concentrate is a by-product. I guess the real question is whether the amount of by-product (which one assumes is just returned to the sea at present) is large enough to make it commercially viable to extract lithium. Also, in Saudi Arabia and similar countries you could use solar power to generate the electricity required to run both plants. Obviously not an immediate priority but certainly worth investigating further down the road.

Nala, They are talking about the dividend to be declared for the quarter ended 31 March which is due to be paid at the end of July.

Sorry, for the avoidance of any confusuion, when I said the 2021 PAT, I meant the 2021 PAT from continuing operations.

Ants100, I'm not sure you've adjusted your figures. The 2021 profit after tax (PAT) was approximately £1.3bn (80% x £1.6bn) and AV is on target to reduce controllable costs by £300m by the end of 2022 (say £240m post tax). So, even allowing for no growth in 2022, AV could be expected to generate a PAT in excess of £1.5bn. AV currently has 3,687m of shares in issue. So, after consolidation, we could expect there to be about 2,802m shares in issue (76% x 3,687m). AV expects to pay a dividend of circa 31.5p (this may reduce to 31p; the illustrative consolidation was based on 75 new shares being issued whereas the actual consolidation is based on 76 new shares being issued) which would cost about £883m (31.5p x 2,802m). So, by my reckoning the dividend cover shouldn't be less than about 1.5 (£1.3bn divided by £883m) and is probably more likely to be in the region of 1.7 or more (£1.5bn divided by £883m). Obviously this all assumes that events in the wider world since the results were announced haven't affected AV's own internal forecasts; the fact that AV said that they expect to be able to pay circa 31.5p would seem to suggest that they must have reasonably good visibility for the next 12 months.

Devon, Give me examples of consolidations you've analyzed (to compare and contrast). A DCF valuation methodology would support the share price rise post consolidation i.e. surplus cash on the balance sheet presently having virtually zero future value. Also, what rationale can you give me for the dividend yield to rise to close 8% post consolidation as you would suggest? I'm not saying that the dividend yield should be expected to normalise back at 5.4% (external factors, such as gilt yields, have changed since the results) but I'd be very surprised if AV was trading on a forward dividend yield of more than (say) 6% in the current market, subject to other external factors beyond AV's control. Obviously the 500p+ share price post transaction would appear to require value to be created "out of thin air" but this can be supported by DCF methodology (value that wasn't being recognised is now being recognised becaue the surplus cash is being paid out). Alternatively, if you look at the AV share price as being akin to a moderate risk perpetuity, then a share price based on expected dividend yield is also not unreasonable. However, it's certainly debatable whether the perceived future "risk" will have increased as a result of the payout and whether or not a higher premium (dividend yield) will therefore be required going forward. All in all, I think a share price of not less than 450p (a prospective 7% dividend yield) is more likely than a share price sub 400p but we'll have to wait and see (after all thoery is all well and good, practise makes perfect).

Devon, This is not a normal consolidation, plus AV have given very clear guidance on their future dividends (barring another financial crash or similar crisis). The last time I went through a consolidation like this was Topps Tiles, many year ago, and, although the logic was sound at the time, it was undone by the fact that they borrowed the money to make the repayment (and interest rates subsequently rose undoing all the good work). AV are using surplus cash on their balance sheet so that risk is more or less eliminated. Sure, it does mean that AV doesn't have the cash to make a large acquisition but I don't think that's necessarily a bad thing; too often companies who have too much cash do an acquistion simply to utilise the surplus cash rather than because the acquisition makes complete commercial sense. Borrowing money to make a large acquistion forces a company to think twice before it presses the button. Sometimes no acquisition is better than any acquistion.

Devon, Nobody knows what the share price will be on 16/5 but, all factors remaining equal, then you could easily make an argument for the share price being 583p. Here's the maths. The share price at close the day before the results was 406.6p and the dividend yield (based on the final dividend announced the following day) was 5.4% (22.05p divided by 406.6p). AV announced that the dividend for the forthcoming year would be at least 31.5p. So, assuming that there is no change in the dividend yield post transaction, then the share price post transaction could be expected to be 583p (31.5p divided by 5.4%). However, I should point out that there are many factors that might effect the share price post transaction, not least future dividend yield expectations. As LIBOR and gilt rates are rising, it's likely that the market will expect a higher dividend yield from AV, which will in turn reduce the post transaction share price e.g. if the expected dividend yield was to rise to (say) 6% then the share price might be expected to be 525p (31.5p divided by 6%). Sub 400p would appear highly unlikely, as that would imply an expected dividend yield of 7.9% going forward (I don't think that we're at those levels yet but who knows).

It seems that the shorters are doubling down and won't let this get away from them.

Warthog, You've been repeatedly asking the same question for the last few weeks. We none of us know for certain what will happen. In theory, the transaction should not have any impact on the deemed market value of your investment i.e. the value of your existing shares before the transaction ought to equal the value of your new shares and cash received after the transaction. But that's in theory. In reality, there are plenty of external factors that could affect the future share valuation that have nothing to do with the transaction.

The problem with most conventional consolidations is that they are often undertaken to "fix" a perceived "undervaluation problem" but if the market thought it was a dog's breakfast before consolidating the shares rarely changes that perception.

I mentioned the DCF valuation methodology because that goes some way to explaining the AV "valuation conundrum" after the transaction. The shares are currently trading at about £4.357 (£4.21 ex-dividend). Allowing for the dividend, that should mean that after the transaction the new shares should be worth about £4.28 [4 x (£4.357 -£0.147 - £1)/3 - BODMAS applies]. However, based on that valuation, the eps and dps of the new shares would be higher than the old shares and it would not be unreasonable to believe that the new shares would therefore trade at a higher value, such that the eps and dps of the new shares would roughly equate to that of the old shares. This in turn would create additional value, i.e. the value of the old shares would be less than the value of new shares plus the cash received, but at the outset we said the value before and after ought to be same, all other factors being equal.

So where has this additional value come from? Well the DCF valuation methodology would suggest that £1billion of surplus cash sitting on the balance sheet has virtually zero future value (because it's never expected to be paid out) whereas if it's paid out now it has a present value of £1billion i.e. under the DCF valuation methodology the value of the company should increase by £1billion. But don't get too over excited; part, or all, of this additional value may already be baked into the current share price (in part, explaining some of the increase in the share price since the results) and it would therefore probably be best to compare the value of the old shares the day before the results with the value of the new shares after the transaction has completed to see if this indeed holds true.

Warthog, This is not a conventional consolidation (AV is not consolidating it's shares to make them more "tradable") and AV isn't borrowing funds to return capital (AV is not taking on additional "cheap" borrowing that might ultimately prove to be more expensive than envisaged). So the transaction poses few risks. Also, using a discounted cash flow (DCF) valuuation methodoloy, surplus cash sitting in the balance sheet has virtually zero future value (because it's assumed that it will be held indefinitely). So stop banging your drum and wait. If you are unhappy with the proposed transaction, sell and move on.