The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
RubyDog, REIT dividends are paid based on the EPRA profit not the tax adjusted profit. In any event, capital allowances aren't generally available on building works and certainly not if the capital expenditure is reimbursed by the tenants. Investment properties are carried at their estimated market value (no depreciation) and any increases/(decreases) in their valuations are, I believe, excluded from the calculation of EPRA profits.
Not sure they could delay paying dividends unless they went to an annual dividend cycle e.g. if the Q3 FY23 dividend was the last dividend for FY22 then they couldn't delay their quarterly dividends if they intended to pay out 90% of their FY23 EPRA profits by Q3 FY24. In any event, delaying the dividend only defers the cash crunch.
As regards the bank borrowings, the liabilities are (probably) joint and several and if there is a risk that valuations might continue to fall then lenders would probably insist on any money raised from property sales being applied against their outstanding debt (at least until there was more headroom in the LTV) i.e. sell one property and the lender would probably insist that all of the money was used to pay down the outstanding "portfolio" debt whereas sell (say) ten properties and the lender might agree to RGL retaining (at least) some of the "excess". Bottom line, selling the odd secured property here and there is unlikely to free up the cash RGL needs and selling a large portfolio of secured properties seems unlikely (few, if any purchasers, would have the cash; they'd probably need to raise some debt themselves and that might prove problematic at the moment).
Guitarsolo, the banks won't want to be lumbered with the properties. The more I look at it the more I wonder how RGL ever planned to pay down the debt. The REIT distribution rules would never have permitted RGL to retain sufficient cash to pay down the debt over a 5-10 year loan term. So, I can only assume that it was always RGL's intention from the outset to sell a significant number of the properties into a (hoped for) rising property market and/or be able to raise additional capital by the issue of new shares (more likely the latter). Unfortunately both plans have been scuppered by the current economic travails (plus the additional pressure of WFH).
The main problem with raising fresh equity is the fact that the shares are trading at a substantial discount to NAV and, at it's current market price, RGL would probably have to double the number of shares in issue to give it the headroom it needs. If RGL could get a capital raise away at the the current market price that would give RGL c£115m; sufficient to repay the retail bond and make a (big) dent in its bank borrowings. However, all other things being equal, it would also halve the current dividend per share from 4.8p to 2.4p which would have a big impact on historic investors who bought at a much higher prices.
I think personally I would prefer if RGL looked at long-term zero dividend preference shares rather than an issue of ordinary shares (in the hope that with a sufficient efluction of time the property valuations could improve)
Ahananda, I'm not sure "... anything or anyone remotely successful is talked down and despised ...". I just think we are more skeptical. You could argue that the US market is full of suckers; they'll accept repeat bankrupts as long as their last business is a success (in the meantime they pick up the hefty bill for the earlier failures).
Do I despise Musk? I think he's a chancer who has bent the financial rules. Both Tesla and SpaceX have been big financial sucessess (at least for him; you could question whether the companies current results and/or prosepective future results warrant the sky high valuations) but they could quite easily have been big financial flops. If Tesla's IPO had flopped then Tesla, and also potentially SpaceX, would have gone bankrupt. SpaceX was one launch away from collapse (the success of its final launch resulted in NASA awarding SpaceX a $2bn contract the next day despite SpaceX having zero funds and its technology remaining fairly nascent).
There is no doubt that Musk is the consumate salesman (despite what many people think he's not an engineer and many of his "big ideas" aren't actually his own e.g. he didn't actually found Tesla or design its EV). The only real question is whether Musk is selling snake oil. Musk was able to sell a pup for a mint (realistically people paid way over the economic odds in the Tesla IPO; most of the valuation was hope over substance). The fact that the Tesla share price has continued to rise does not (necessarily) retrospectively justify the IPO price; you could make an equally cogent argument that US investors have more money than sense and are devoid of any economic common sense i.e. that Tesla's rising share price (and the share price of the other Magnificent 7) isn't being driven by sound, financial analysis but simply by a "wall" of new money coming into the US market looking for a home.
People used to say (a long time ago) that an employee would never be fired for buying IBM (their computers were expensive but they were reliable; people overlooked the fact that their computers lagged their competitors in performance). Who now remembers IBM? In the late 1980s IBM briefly became the largest quoted company (by market valuation) in the world. They are still around but are a shadow of their former self. Likewise, today, who's going to find fault with someone buying shares in one of the Magnificent 7?
Interestingly in today's Times some analysts are beginning to question whether there is a big technology bubble in the US market reminiscent of the early 2000s and, like then, they are being shot down by people saying they don't understand the "new paradigm". Some are even saying that AI is the "new steel" (in the late 1800s the steel industry "exploded" and made a few individuals, like Andrew Carnegie, fabulously wealthy) but, unlike steel, AI is more likely to destroy jobs. There's no such thing as a "new paradigm"; it's simply rinse and repeat.
People forget that before its US listing Tesla was teetering on the edge of insolvency (I'd actually argue that if the regulators had looked under bonnet, as they should have done, they'd have found that Tesla was insolvent - it had taken desposits on cars that it had failed to deliver and, if the listing had flopped, had insufficient cash to build and deliver the cars and would have been in breach of contract). Musk essentially lied to potential investors but was 'saved' by the unbound enthusiasm of young (often first-time) investors who wnated to buy into his dream and buy shares in the new, upcoming EV technology (if the listing had flopped Musk would have been just another Bankman-Fried). In many ways Tesla has succeeded despite its many failings simply because its investors are bereft of any economic sense (Tesla is priced on the basis that it will be the outright titan of the EV market for decades to come; that looks increasingly unlikely).
With the benefit of hindsight, the mistake SND made was that it failed to foresee (or account for) possible contract delays and, as such, failed to raise sufficient capital at its IPO (it raised £20m, much of which was used to pay down existing debt, when it probably should have raised £40-£50m). In part, this failure was deliberate, the existing investors did not want to dilute their stakes further (perhaps they should have taken a page out of the Musk playbook - award themselves $50bn+ in potential share options and then insist that he should be given at least 25% of the company when he sold down his stake to invest $40bn in Twitter; he may as well just have burnt the money).
There is an easy solution to SND's current problems. Its current shareholders, being so enthused with its potential future prospects, should all agree to participate in a pro-rata Placing of (say) 10m shares at £1 each (it could be 40m shares at 25p each; the number of shares and the price per share is fairly irrelevant as long as SND raises at least £10m). Any takers?
The difference between Tesla's IPO and now is that sentiment has shifted and investors aren't exactly clamouring to pour money into the likes of SND (even £10m might not be suuficient to guarantee its survival if the contracts are further delayed because of the ongoing economic situation).
Investors love to blame the UK market for undervaluing or underappreciating UK companies but at the end of the day the UK market is its investors. If investors aren't buying and running for the exit every time there is a problem, is it any wonder that the UK market is in the state that it has become?! Stop blaming everybody else and take responsibility for your own actions. If the UK market doesn't appreciate SND it's because you (collectively) don't appreciate SND.
Guitarsolo, I've had a quick trawl of the Revenue Manuals and can't find any 'debt repayment' exemption. I've also had a quick look at the Edison reports and didn't see any reference to "... paying the debt would negative such so compliance would be maintained...", whatever that means. But, I stand to be corrected.
My read is that RGL could possibly (temporarily) cancel its property income distributions (PIDs) to help repay the retail bond but that it would then be in breach of the REIT distribution rules and, as such, would then be required to pay corporation tax at 25% on the difference between 90% (not 100%) of its EPRA earnings and the amount actually distributed. E.g. if its annual EPRA earnings were (say) £34m and it didn't make any PIDs then it would be liable to pay c£7.65m of corporation tax (25% x 90% x £34m).
However, RGL would need to be wary of losing its REIT status altogether if HMRC was to deem the breach of the distribution rules to be 'serious' (unlikely I think, as long as RGL explains its rationale to HMRC, but still a possibility). If RGL did lose its REIT status altogether then that could have serious future ramifications with reagrd to the level of dividends RGL could pay down the line unless it could (somehow) regain its REIT status.
Cancelling the dividend is a nuclear option that RGL would need to consider carefully and potentially discuss with HMRC before proceeding.
404x, RGL does not currently pay any corporation tax because its distributes 90% or more of its EPRA earnings as PIDS but if it cancelled, or significantly reduced, its PIDs then it could become liable to pay corporation tax. I never said "... reducing the dividend wouldn't reduce corporation tax ...".
Arteee, we adapt and learn but come the revolution ... ;-)
REIT dividends are based on EPRA rental income after expenses and financing costs (they exclude capital gains/losses) and there isn't much, if any scope, to offset "other costs" as you suggest. I'm not 100% certain but if RGL was to (say) reduce it's dividend to 60% of its EPRA rental income then it may only pay corporation tax on the 40% not distributed (as opposed to 100%).
People (including Inglis) need to start thinking outside the box. It's to say that they need to sell property but there are few, if any, large cash purchasers (other potential purchasers are struggling to raise the finance) i.e. Inglis couldn't make large scale disposals, even if he wanted to (there simply aren't the buyers with the cash and unencumbered by debt). Therefore, Inglis's only alternative is to make peicemeal sales to small cash purchasers (up to c£5m). He also has to consider whether individual properties are being used as security for a loan against a "package" of properties (banks will more often that not make loans against a "package" of properties on a joint and several basis, rather than on an individual property by property basis) . If they are so secured, the banks would probably expect him to apply 100% of the proceeds against the outstanding debt and there would be no "surplus" funds left to help pay off the bond. There may be some small properties that are not secured against RGL's debts but I suspect they are few and Inglis may have already sold what he can.
Factoring in trade and other receivables, cash and cash equivalents, trade and other payables, and deferred income, I'd estimate that Inglis had c£19m of "free" cash at the end of H1 FY23 (as opposed to c£25m at the end of FY22 and c£19m at the end of H1 FY22) but he'd probably need/want to keep at least £10m of that figure for operational purposes.
So, at a push, if nothing else changes, Inglis probably has c£10m of cash available to repay the bond in August unless he can sell a significant chunk of the property portfolio to repay at least one of the existing bank loans in its entirety and generate a cash surplus of c£40m+ (that would appear highly unlikely/unrealistic). His only realistic options would therefore appear to be to either try and issue a new retail bond (with a much higher coupon) or consider an issue of long-dated zero dividend preference shares (this would hurt the existing shareholders but may at least provide the breathing space to allow property values to recover).
AoC, the 285p figure I quoted is not my figure; it's LSE's. Check the historical chart.
I've checked some AV purchases I made in Aug/Sep 2020 and they agree with the prices quoted on the historical chart, so I think it's safe to assume that LSE has not adjusted the older share prices to take account of the capital reduction in April 2022 when we each received 76 new shares for every 100 old shares held. So, I would asssume that your (sarcastic) "think about it?" comment would be in reference to multiplying LSE's figure of c285p by 100/76 (which would give your figure of c368p, allowing for some rounding differences).
Hmm, so far so good, but what about the c102p per old share (or c134p per new share) we received as part of the capital reduction? For a proper like-for-like comparison, you'd need to either add the c134p to today's price i.e. 368p vs c551p or deduct it from the adjusted July 2020 share price i.e. 234p vs 417p. You can't simply ignore the capital return or discount it as if it was a normal dividend return (it wasn't paid out of AV's current year profits and is non-recurring) simply because it's convenient for your argument.
For example, if (say) you'd originally bought 1,000 old shares at 284.5pps (LSE's quoted closing price) on 6 July 2020 they'd have cost you £2,845. Today, you'd own 760 new shares which, at 417pps, would be worth c£3,169. However, you'd have also received c£1,018 as part of the capital reduction. QED if you'd bought 1,000 old shares for £2,845 on 6 July 2020 and sold your 760 new shares today at c417p you'd have generated a total capital return of c£4,187 plus annual dividends of c£793 i.e. a capital return of c47% and/or an overall return of c75%. Not that bad when you consider Covid, war in Ukraine, Truss-enomics, rampant inflation, near zero growth etc. LGEN (run by a man) doesn't even bear comparison (unfortunately).
I rest my case. Go back to beating the wife ;-)
Long story short, having trawled Companies House and the Regulatory News, FTC was a totally different company back in March 2000. Back in March 2000 FTC primarily dealt with high volume, low margin wireless components, whereas now it deals in lower volume, higher margin wireless components, and had c63.5m shares in issue (which equates to a market capitalisation of c£1.45bn back in March 2000). Also, March 2000 represented the peak of the tech boom which started in the late 1990s and the FTC share price had not been immune from over speculation (hence the sharp rise and subsequent sharp fall as reality bit).
Subsequently, FTC sold its high volume wireless componenets business in October 2006 and several other of its ancilliary businesses in 2007 and 2008.
In November 2015, FTC moved from the Main Market to AIM and, concurrent with the move, its existing 10p ordinary shares were each sub-divided into one new ordinary share of 0.1p and one new deferred share of 9.9p (the deferred shares have no rights to either dividends or capital and are un-listed - they are essentially worthless). At the same time as the move to AIM, FTC did a placing of 90m new shares and shortly thereafter completed an open offer for a further c10m new shares. As a result, following the share sub-division, placing and open offer, FTC then had c215m new ordinary shares of 0.1p listed on AIM.
Found this private blog on ADVFN: https://martinflitton1.wixsite.com/privatepunter from a few days ago. I thought it was a very informative blog. However, "Private Punter" is not an analyst (as he says, "thoughts not advice") so CAVEAT EMPTOR.
It would appear that the lead time on new defence contracts can be upwards of 10 years from initial pitch to first order! So, any new defence orders are likely to be repeat orders (rather than new products) but the lead time in LEO satellites can be less than a year! Also capacity constraints could start to becoming an issue further down the line. They indicated to Private Punter that they have capacity for c£25m-£30m of annual sales but at present don't see capacity being a big issue (scope to "sweat the existing assets", which presumably implies that they think they can achieve more than c£25m-£30m if needs be).
It would be nice if FTC could land a few more large orders over the next few months but we've already had quite a frenetic last six months (since 21 July last year they've announced six orders worth c£26m), so can't really complain.
SND is currently only valued at c£8.5m or c9.75pps and I would hazard that it might need a £10-20m cash injection to see it through the current customer contract delays (assuming that the customers don't dealy further or cancel altogether due to the current economic backdrop). It burnt through c£4m of cash in H1 FY23 and, despite the spending cut backs in H2 FY23, one would imagine that it's still burining through cash at a rate of knots and would no doubt have to ramp up its costs again if and when the current delayed customer contracts are finally signed off (it would probably have to front up the additional costs before revenues were realised).
On that basis, it's hard to see a strategic investor stepping in e.g. if they were to inject (say) £10m for a 30% interest that would imply an inherent market value of c£23m or c26.6pps before the investment. That's a big valuation gap to bridge, particularly when there is no absolute certainty that the delayed contracts will not be delayed still further or even cancelled due to the ongoing wider economic situation. That said the share price did reach the low 20s in early trades yesterday (biut couldn't sustain it) so perhaps there's some scope but it's a bit of chicken and egg (the share price may hit, or exceed 26p+ if an investor commits but an investor might not be inclined to commit until the share price was at least double the current share price). On balance I'm more inclined to see a buy out at this level but, given the likely cash injection needed, wouldn't necessarily see much scope for a significant premium to the current share price.
Rydian, the TFIF bond fund is set to return c11.5p or c10.9% for the current financial year.
"Would a man so convicted still be in post?"
Benjamin Netanyahu for one. I think you'll also find that Jacques Chirac was found guilty of misusing public funds when he was mayor of Paris but was granted presidential immunity. Mitterand was also quite profligate with public funds when he was president but nobody thought to prosecute him until after his death.
Nobody is saying that women in business are any better or worse than men but it would seem that men are selective when accusing women of misconduct.
As regards the share price, Amanda has had to deal with the after effects of Covid, war in Ukraine, Truss-enomics, rampant inflation and near zero growth. That's a lot to contend with in less than four years. The AV. share price performance may not have been stellar but none of its peer group have faired much better over the same period (the LGEN share price is more or less the same over the comparable period - c233p today vs c223p on 06 July 2020). Also, do your figures take into account the retrun of capital? The LSE historical chart suggests that the AV price on 06 July 2020 was c285p when adjusted for the return of capital and share consolidation.
Are you being selective with the truth AoC or just simply being a misogynist?
Sorry, but when people start judging a CEO's performance based on their gender I feel compelled to put my pennyworth in
It's unlikely in the first instance that the banks would call in their loans if the loan covenants are breached. In the event that the covenants are breached, the normal course of action would be a review of the outstanding loans and an increase in the interest charged to reflect the additional risk (which may or may not be covered by hedging).
Ideally RGL would like to do a capital raise but, given the deep discount to NAV, the issue of zero dividend preferred shares may be an alternative.
No, it would seem that "most men" are women in drag who are afraid of any woman in a senior executive role (because she just might show them up).
Amanda quickly and successfully oversaw the downsizing of AV's problematic overseas businesses and has proceeded to expand AV's "capital-light" business despite the socio/geo-political backdrop (she's had to cope with the impact of Covid, the war in Ukraine, Truss-enomics, spiralling inflation and zero growth, if not recession).
In the circumstances, I think that Amanda has done extremely well but for some men (who feel that their own masculinity is being threatened) it seems to never be enough (even if a male CEO could have done no better) and remain totally oblivious to the socio/geo-polictical backdrop.
It's a refreshing change to allow the share price to do the talking ;-)
Whilst back in the real world AV's acquisition of AIG Life has been referred to the CMA and all of its peer insurers seem to be in the same boat at the moment (a sea or red). I suggest that all the anti-wokists just keep their trousers on or get some real cajones like Amanda (who has to deal with your drivel day in day out)!
I'm a long-term SOS holder, so I'm fairly biased, but I believe that SOS can achieve bigger and better things if given the time; I keep a watching brief on ASOS, BOO, QUIZ, SDRY etc. and SOS was the only one to deliver growth in sales in the December quarter. The pivot that SOS made in Q2 FY24 to reduce its discounting and maximise gross margins was well considered but there were inevitable short-term costs (it had to gear back its previous promotion-led sales growth plans and the additional marketing costs associated with that) and, together with the high street and overseas expansion plans, it needs a bit more time to show that its sales growth (albeit at a lower rate but higher margin) is back on track. I think the post-Xmas Q4 FY24 trading period is going to be tough (it's difficult to ignore the current wider economic situation) but am hopeful that SOS will still be able to deliver on its revised FY24 targets and beyond.
I think the market over reacted to SOS's Q2 FY24 results (which is still reflected in the current share price) and does not yet appreciate the management team's capability to deliver its long-term aims. The team is laser focused and rarely sits on its laurels. The team showed its mettle during COVID and, whilst other UK online retailers have been just "plugging the leaks" for the last 12 months (their strategies haven't really changed; they've just been downsizing), has taken decisive action to shore up the bottom line and move forward.
Hopefully we should start to see the dividends in the next 6-9 months and the share price start to improve. The analysts haven't been keen on the pivot to the high street but the truth is that if analysts ran businesses they'd probably be bust before they even opened their doors! The SOS management team understands fashion and is not prone to making rash, ill-considered decisions. Hang tough.
Caveat emptor as always
AB, You seem to be pretty well on course already.
Assuming that:
1) You are (say) 35 now;
2) You are generating £10k of dividends within an ISA wrapper now;
3) No income or capital is withdrawn before you reach the age of 50;
4) All dividends are re-invested to earn (say) 6% per annum;
5) A first year dividend re-investment discount rate of (say) 55%;
6) Annual dividends grow by (say) 2.5% per annum; and
7) Annual platform fees of (say) £150
Then I would project that you might expect annual, tax-free dividend income of c£33k by the age of 50, even if you don't make any further capital contibutions into your ISAs, and should be able to withdraw an income of (say) £25k per annum from 50 onwards, uplifted by 3.5% per annum thereafter, without needing to deplete your capital.
If you were able to contribute an additional £5k per annum each year up to the age of 49 on the same terms then you might expect annual, tax-free dividend income of c£41k by the age of 50 (c£49k at £10k per annum and c£65k at £20k per annum).
HOWEVER, there are a number of important caveats:
a) The projection is very sensitive to the annual dividend growth rate (at 1% pa you would start depleting your capital);
b) It goes without saying that you've got to pick shares that can sustain their dividend;
c) Companies can cut their dividends and/or simply go pop;
d) You take a risk if your dividends are overly reliant on one share or one sector; and
e) This is an ideal world paper exercise (the world is rarely ideal)
Diversification is IMHO key. Personally, I've got about 8% of my portfolio in an income trust (AEI) which is currently paying c8%. It aims to distribute all of its current dividend income (so there isn't much dividend coverage and it's dividend is susceptible to the performance of its underlying investments) but it's invested in 50+ companies across the UK and Europe.
Hope that helps.
Caveat emptor as always