Member Info for TinkerT

Adeg1,
At first sight I was in complete agreement with you but I followed sfh’s link and can see how it could work. The idea seems to be that what you get back is treated as reducing your cost of purchase. So, if, for example you paid £80,000 for 20,000 shares in Aviva, you would pay nothing on receipt of the £20,000 redemption price for the B shares in the current scheme. If, however, you went on to sell your entire holding of Aviva in a single year for £100,000 then your gain in that year would be based on an initial £60,000 cost and your gain would be £40,000 not £20,000. The trick would be to sell over a number of years to maximise allowances and to set-off against losses where appropriate.
Maybe this deserves further in investigation ?
Tinker

WM,

I’m sorry but that isn’t my point at all. I know that I will own the same percentage of the company pre and post consolidation.

What I am saying is that immediately after the payment out of the company of £3.75 billion, the company’s book value will be reduced by £3.75billion and also, prospective investors will want to pay a lower price for a share than they would have been willing to pay the day before, when they would have qualified for the £1 bonus. In these respects it is EXACTLY like a special divi.

I would love your position to be right but I genuinely cannot see why doing it as “capital” rather than “divi” should save us from a drop. I am sure the board has given it a lot of thought and has good (accounting and taxation) reasons for doing it this way but at the end of the day I don’t see us (taking into account cash and share value) being materially better off.

Tinker

Sorry to be negative again but we opened at 428p this morning. That suggests a massively optimistic anticipation of great results. Current sp suggests disappointment.
But remember the very recent broker views of “conviction buy” and target prices over 500p. Maybe people are still weighing up what the return of capital will mean for them.
Tinker

WM,

Would you agree that the book value of the company will reduce when it parts with £3.75billion?

Would you agree that people would be prepared to pay more for a share in a company that was about to return capital to its shareholders than than they would for a share in a company that had just done so?

I think the answers to both questions is “yes”.

If I am right then share price will inevitably fall following the return of capital.

I’d like to think the SP will rise a bit between now and the cut-off date but today’s current 3p rise is not encouraging. I hope I am wrong on this.

What the board is saying is “We’ve got lots of your money. We can’t think of a profitable way of investing it so you might as well have it back.”

More generally, I am optimistic about the leaner, smaller AV. I topped up recently and look forward to enhanced divies. I just don’t think the capital return does us any favours.

Tinker

The market seems to be saying “So what!” We are trading only 6p above yesterday’s close and 7p down on Monday.
Tinker

Trotsky,

Maybe I didn’t make myself clear. You are right that after the consolidation we’ll each own a bigger slice of the company. But my point is that it will be a smaller company because it will no longer have the £3.75billions of cash. You are right that the company is already smaller in terms of its operations, having sold its overseas businesses but the proceeds of these sales still appear on the balance sheet. What we are getting returned to us is the proceeds of the sales and undistributed profit from previous years.

What I am saying is that, as with any distribution, when the company pays out dosh, it loses some of its value. Small divi payments result in small loss and small SP drop. Larger payments (such as this) will see a larger drop. Nothing sinister in that and it is probably a sensible move but it does not mean we are getting something for nothing.

A really good set of results would have been bigger profits not a 10% reduction.

Tinker

I’m not unhappy about getting capital returned to me but I think we’ve got to see it for what it is: At the moment, the company is sitting on a pile of cash due to its divestment from certain overseas businesses. That cash affects the book value of the company and thus the share price. Once we’ve all had our 100p a share returns then the company will be worth less. The Share price will go down as on a normal ex d date but proportionately bigger.
Paying off debt, buybacks and “capital returns” all sound great but they are really three ways of shrinking a company. If your business is expanding then you take on more debt or raise more capital by issuing new shares. Shrinking may be the right policy at the moment. The board will say we are “leaner and fitter” but we shouldn’t deceive ourselves into thinking that we are getting a free lunch.
Tinker

BodRuncie,
Thanks to you too.
T

GaryJ,
Thanks. That was very helpful.
Tinker

Anybody know whether the 100p a share will count as income or a capital gain for tax purposes? I know it won’t affect people in ISAs. No guesses please.

Generally, the market doesn’t seem impressed (so far). Will be interesting to see what Cevian say.

Tinker

Today’s 4% drop is a lot better than some of us had feared. It brings us down an aggregate of 13% from our closing high of 417p two weeks past on Friday when the Russian threat first became an issue.

One group of investors must believe that a worst case scenario (we get nothing for our Rosneft shares) has now been priced in. If that’s the case then we can be optimistic that higher a higher price of oil will increase our cash and eventually drag SP up.

A second group will either (a) suspect a deal whereby we are able to sell the shares for better than a give away price or (b) be hopeful that there will be a political solution (perhaps the toppling of Putin) that will render the “exiting” unnecessary. If this second group is more significant and their hopes are disappointed then we can expect further falls.

I don’t know which way it will go.

Tinker

Jakers,
I’m not an accountant so my opinion on the value of the Rosneft stake would be pretty worthless and I am beginning to doubt my own criticism of the board’s overtly political statement. Maybe, as Cong hints, the statement was designed to get government off their backs and give them breathing space. Maybe they deserve more credit than I gave them
Tinker

Jakers,
I’m wondering whether the board have yet to decide how they are going to “exit” as they put it. Possibly they are still considering which of the several options being canvassed they are going to go for. The vagueness could be deliberate.
Tinker

Happy, I agree.
Are we now to expect a statement from BP on Partygate? Or the board’s considered position on who should win Dancing on Ice? I know my flippancy will be considered inappropriate given the suffering involved but WE pay the board to look after the company, not to be third rate Michael Buerks or BobGeldofs.
Tinker

Thanks Mark, Bumble,Happy and other sensible posters. There has been so much rubbish on this site during the last few days from people with no genuine interest in the company that I was on the point of abandoning it.
I am firmly of the view that the West will not “hobble” the Russian economy by taking a hack-saw to its own foot.
Tinker

Yes Bumble,
I think the word “exiting” in the statement has been very carefully chosen. It is deliberately vague and covers everything from total abandonment to a mere change in accounting provision. We don’t, at this moment know what the board has in mind. Maybe they haven’t decided yet. We’ll have to wait and see. Meanwhile the traders will make/lose big time.
Tinker

I was wrong. I expected the board to act in the interests of the company. Obviously I was just being stupid. But then I grew up at a time when a Foreign Secretary wouldn’t encourage people to go abroad to join in some carnage.
Send in the clowns......
Tinker

Jamtart,
Don’t use this platform to sound off about Scottish independence. This is about BP shares. You and your separist friends get enough air time without hijacking every possible discussion forum.
Tinker

Yes Jakers. I don’t know anything about it but you’d think it would be covered by some sort of human rights stuff in international law. The idea that a government can force an individual or company to suffer severe financial loss for reasons of foreign policy strikes me as likely to be illegal. If anybody can give an expert opinion......
Tinker

Does anybody know if there would be legal remedies available to us if sanctions adversely affected us? Could the HMG be forced to compensate us?
T