Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
When Vodafone is spending money to buy own shares, it means they have money to pay dividend too
Remember, Vodafone do not need to buy own shares to retire convertible bonds. They can retire convertible bonds when time arises, by issuing new shares
It clearly means, there is plenty of cash (and cashflow) with Vodafone to not only pay dividends but to buy own shares instead of relying on increasing issued shares by creating new shares at time of converting bonds. Issue of new shares would be just like rights issue for increasing cash in business (increase cash is cash that Vodafone is using to buy shares for treasury).
It is really funny how market behaves, that undervalue or overvalue a share. Unfortunately, market never acts sensibly.
Market could not understand that if a company is buying own shares, it only means company is not in any financial trouble. Only companies that have excess funds and is in no immediate need of borrowing, could buy their own shares
As for Vodafone, buying own shares has some purpose too, that is, reducing debt using funds company is generating, as shares bought are intended to repay convertible debt.
Secondly, buying own shares mean company is confident that shares would go up with time and there is no weakness in company.
Thirdly, companies know difficulty in borrowing when company is not doing good business and are tight with cash flow and that they may need cash in near future, as, when company needs cash, borrowing becomes expensive
So, only a healthy company buys their own shares. No one is asking Vodafone to spend money buying own shares, as, even if debt repayment (convertible bond debts) has to be done with shares, company can issue new shares (saving cash used for buying shares) instead of paying bond holders with bought treasury shares.
So, in my opinion, a company like Vodafone, that is buying own shares, indicate that company is in good health financially and has strong cash flow.
Some may say that I should use own money on what my words are saying. So, I bought Vodafone shares today and added more to my portfolio
Seems, some people r confused regarding buy back. Well, buy back for Vodafone is similar to paying back debt
For instance: Suppose Vod took £ 1.4 bn loan using convertible bond issue. When loan matures, Vod had to pay capital plus part of interest (according to condition of loan) to bond holders and that could be ~1.2 bn shares at time of redemption.
In other words, convertible bond holders bought shares they would receive at time of bond maturity. Value of those shares could be more than loan they gave or could be lower, depend on share price at time of conversion
To convert bonds at maturity, Vodafone has 3 options.
1: Issue new shares
2: convert bonds from treasury shares, if they have enough treasury shares
3: Buy shares from market at time of bonds maturity & redeem bonds using those shares
1: If Vodafone has cash crunch than they would obviously use option 1. In this way, number of shares in market would increase & overall value of assets per share would decrease. Diluting asset value of share is not a good idea. It adversely effect share price too
2: If Vodafone intends to give shares from treasury than best option is to increase treasury shares buying over time to average out purchasing share price. This is best option if Vod has regular income & believe they can redeem convertible bonds without diluting assets per share or buying shares in one go, needing billions of pounds.
3: If Vodafone would not buy shares over time to increase treasury shares & do not want to issue new shares that would reduce assets per shares, then at time of redemption, Vod would need to buy enough shares to convert loan amount into shares. In this option, problem is that, Vodafone would not know price of shares they would pay, as share price at time of redemption is uncertain that no one can predict. Shares price could be very high (or very low) at time of redemption & there would be no option other than buying shares from market at any price. Regardless, at the time of conversion, Vodafone need to have enough cash to buy required shares, that Vodafone could not be certain to have, especially when Share price is unpredictable and could be vary high
So ... what Vodafone is doing is that they are buying a small amount of shares over time and accumulating shares in treasury, so that they can redeem convertible bonds with treasury shares
In other words, every share Vod buys to hold in treasury, Vod is reducing debt. For instance: If Vod have to redeem £1.4 bn convertible bonds with 1.2 bn shares than if Vod bought 1.2 billion shares in treasury over time, they paid their 1.2 bn shares debt liability that they took when they borrowed £1.4 bn convertible. This debt liability is uncertain amount, as it depends on unpredictable Vod share price at time of redemption
So, whatever shares Vod buy every day, Vod reduces their debt labilities, that would come when redemption time of convertible bonds arises.
danielh: I am sorry, I forget to mention that:
If Vodafone management do not hand out excess cash they have to shareholders than what they should do?
Management take huge bonuses, pay rises, paid expensive holidays and share bonuses held in treasury (after buying shares from open market into treasury)?
danielh: All loans and Bonds have redemption period and currency denomination. For same redemption period and currency denomination, bonds are always more expensive than bank loans.
There are some corporate bonds (usually convertibles) that are linked to share price and thus, have very low interest rate, but their return happens when company do good and share price rises. For instance, such bonds are redeemable in shares (plus interest) at fix buying price [like Vodafone recently redeemed MCB. MCB holders would have got same number of shares ... or at £1.2 per shares regardless of share price in market].
Advantage of bonds for companies is that, bond holders cannot push company into bankruptcy. If company does too bad and could not even pay interest on bonds, than bond price goes down ... even become worthless.
On the other hand, if company get into trouble than bank loans can push company into bankruptcy.
I do not think, Vodafone is paying too much dividend or having financial difficulty.
Think: What Vodafone should do with their huge cash flow and substantial EBITDA, other than give reasonable part of it to shareholders?
When Vodafone has declared their policy to keep debt (bank loan + corporate bonds) between 2.5 and 3 time EBITDA, then that is what they are doing. Their debt has not exceeded over 3 X EBITDA, so why worry?
If Vodafone was having cash crunch than they would not be buying shares to keep in treasury so that they can redeem convertible bonds, rather they would have issued new shares. Maybe, if there was cash crunch than Vodafone would have reduced dividend too.
Vodafone is using their cash to buy shares from open market and use that shares to redeem convertible bonds, instead of issuing new shares to redeem these bonds, shows they have no Cash crunch or having any financial trouble.
BeingTheBanker: To worry about company debt, you should know type of debts.
Vodafone has 3 types of debt.
1: Bank loans (it is danger debt for sick companies, could bankrupt company)
2: Corporate bonds (It is normally expensive but free of danger for company)
3: Debts in form or commitments, etc. (These debt are mostly irrelevant, as it is paid with time and is part of running cost)
Vodafone debt is mostly in form of corporate bonds. They are tradable in market. If company do bad, value of these corporate bonds go down in market. Corporate bonds cannot push company to bankruptcy. So, one should not worry about company having corporate bonds.
Bank loans: Vodafone has ~$1.5 bn bank loans (it was $3 bn last year). This debt is too small for company with over $15 bn EBITDA to worry about.
Just think: Importance of $1.5 bn debt for a company (Vodafone) that distributes ~ $1.6 bn in dividend.
So, debt is not a problem for Vodafone. If debt was problem than Vodafone would stop buying own shares to redeem debt (convertible bonds), rather, Vodafone would have issued new shares to redeem convertible bonds.
Well, Vodafone is paying ~$2 bn to corporate bond holders every year. If anyone worries about that, then one cannot stop their worries. But one should know that if Vodafone revenue decrease so much that they cannot pay dividend on corporate bonds (service bonds debt), first thing Vodafone would do is stop buying shares (to redeem convertible bonds), rather, would issue new shares to redeem convertible bonds.
Even then, if Vodafone could not service bonds, bonds price in market would go down, but bond holders cannot do much to Vodafone.
So, why worry about Vodafone debt that are mostly corporate bonds?
[That is my opinion]
I don't know why some shareholders are worried because share price has gone down, unless they want to sell and make profit.
One should remember that once Vodafone was paying 15 euro cents dividend that got reduced few years ago to 9 euro cents. One should know declared policy of Vodafone, that is, they would keep debt to between 2.5 to 3 times EBITDA. If debt reduces to 2.5 x EBITDA or less, Vodafone would increase dividend. Since revenue is increasing, it is most likely EBIDTA would increase too.
As for debt: Vodafone bank loans is ~ $ 1.5 bn and rest is mostly corporate bonds. Corporate bonds are tradeable and cannot bring company to knee. It means, Vodafone has nothing to worry about debt.
Some corporate bonds are convertible and it means Vodafone can issue new shares to redeems/retire them or buy shares from open market, keep them in treasury and redeem/retire these convertible bonds using treasury shares.
Vodafone buying shares from open market to redeem convertible bonds mean, Vodafone has no cash crunch or worries about debt. Else, instead of buying shares to redeem convertible, Vodafone has option to issue new shares to redeem convertible bonds.
In other words, every time Vodafone buy shares from market (what they are doing almost daily), Vodafone is reducing debt (as these shares would be used to retire convertible bonds)
Vodafone has over 1 billion shares in treasury, and holding these shares means, already retirement of over a billion pounds worth of debt (value of these shares).
I think, in couple of years time, Vodafone EBITDA would increase enough to resume 15 euro cents dividend (could be higher in near future). On the other hand, at present Vodafone share price, 7% dividend is secure.
Vodafone shares buyback is nothing to do with MCB (Only). Vodafone is buying own shares since 2004 as policy and spent ~ £25 billion buying ~ 17 billion shares paying on average £ 1.50 per shares.
Vodafone policy is to keep NET debt between 2.5 and 3 times adjusted EBITDA
Present Vodafone NET debt is € 40.543 bn or 2.82 x EBITDA
Adjusted basic earning per shares improved from 5.6 euro cents in FY 20 to 8.08 euro cents in FY 21
One should expect dividend increase if adjusted EBITDA increases or debt decreases, bringing Net Debt = 2.5 Adjusted EBITDA or less
Debt situation: Average debt payment schedule is 12 years (no short term financing pressure). Vodafone has ~ € !0 billion in cash and short term investment. There r € 7.4 billion unused facilities (thus, no financial crunch that could destabilise the company).
Debts:
Bonds (including MCBs): $46.9 bn euros
Bank loans: 1.4 bn euros
Others: 4.2 bn euros
Total debt: 52.5 bn euros
Cash: 5.8 bn euros
short term investments: 4 bn euros
Collaterals: 2.2 bn euros
Total: 12 bn euros
Total NET debt = 52.5 - 12 = 40.5 bn euros
Mandatory Convertible Bonds have very low interest rate. MCB holders benefit if company do good and SP goes up. MCB is just like buying shares but on top of that, also get 1 to 1.5 percent interest payment.
[ Some wanted to know, why there was difference between conversion price: As issue price was £1.3505 and conversion price was £1.2055. The reason is, interest payment on MCB was very low and they were not getting dividend what they should have got if they had bought shares (1426.8 million @ 1.3505) instead of MCBs. Thus, conversion price was adjusted to take into account 4 dividend payments by VOD (Aug '19, Feb '20, Aug '20 and Feb '21). Taking dividends into account, conversion price calculated was £1.2055. ]
Benefit of MCBs & Corporate Bonds over bank loans.
Bonds are tradeable. Bank loans are not. Interest on Bonds are usually higher than bank loans.
Since Bonds are tradable, Bond holders cannot make company go bankrupt. Interest payment on Bonds are not mandatory, though, if company goes bankrupt, Bond holders payment (and any due) comes before shareholders get anything.
Since Bonds are tradable in market just like Shares, price of bonds in market changes according to health of company.
As Vodafone debt is mostly in form of Bonds, it is obvious that company stands on very solid ground compare to those companies whose debt are mostly bank loans.
Fleccy: 'How do you know what's better? I've previously sold stock stagnating around a price, and invested in "something better", only to see my previous stock take off and my new investment go down; In fact it happened so rapidly, after I moved stocks, it felt personal. Since there's no surety in investing, everyone should do their own research and carefully weigh up any investment decisions.'
Well said and so true. Anyone who has long practical experience of stock market, would confirm what you said. :)
To buy and sell shares, cost money. that could be few percentage points. 1 % goes to govt in taxes (0.5 % when one bought a share and 0.5 % when shares are switched to another share). It means, overall tax for switching shares is 1 % in govt tax. Plus, stock broker commission and price spread.
No strategy has guaranteed success, but lot of research, foreseeing/analysing impact of world economic situation & foreseeing/analysing impact of local situation on particular company helps.
Best strategy in my opinion (not necessary that all would agree): When purchasing shares, one should know what investment shares one is committing, what is expected value of shares in eye of purchaser and what is the prospect of company in distance future.
Then stick with the shares one have until one thinks that company shares are over valued (maybe 10 % overvalued from expected value) and there is some other undervalued share available (maybe 20% undervalued from expected value), then only one thinks of switching shares. [That is my opinion]
danielh, Seen_it_done_it: I think, u missed the point what I wanted to say (maybe, my mistake): Regardless, I still think, Vodafone is not short of money and that is why they are buying own shares from open market, when they could issue new Shares to convert MCBs they issued.
As for dividend, it is better option than not giving dividend. Vodafone management is confident and think that it is better to give dividend PLUS buy shares from open market too. They have option to stop buying shares, pay no dividend or do both, but their cash flow is such that they think, they can do both without much difficulty.
***
U both r right that in 2014, Vodafone consolidated its share with new 6 shares for old 11 shares (making total number of shares almost half).
What I was talking about is that, over the years Vodafone is also buying shares from open market, meanwhile Vodafone is also raising billions of dollars issuing MCB (Mandatory Convertible Bonds). Instead of issuing new shares (what Vodafone could do), Vodafone is converting those Bonds with treasury shares that vodafone buys from open market.
If Vodafone was short of money than they would not spend money buying own shares, rather, would have issued new shares to convert those Bonds (as, they could do that).
1: ***
Vodafone reasons for Share buyback programme (started 2003):
https://uk.practicallaw.thomsonreuters.com/6-102-5389?transitionType=Default&contextData=(sc.Default)
2: ***
Total number of shares Vodafone bought from March 2004 to March 2018:
https://www.vodafone.com/investors/shareholders/share-buyback-programme
3: ***
They are further buying Shares to cover £3.5 bn MCB and intend to keep buying more shares to enhance value in existing shares.
https://uk.advfn.com/stock-market/london/vodafone-VOD/share-news/Vodafone-Group-Plc-Share-Buyback-Programme/85153159
I only put down what I believe, but if anyone thinks I am wrong than also it is fine. No one HAS to agree with whatever other believes.
danielh: Vodafone is cash generating machine. They used that cash in 3 ways.
1: Dividend
2: Share buyback (making them treasury shares)
3: Expansion
In one way, share buyback is also a way of dividend to shareholders. I think during last 15 years, Vodafone has bought more than half the number of shares from the market (keeping huge chunk in treasury and cancelling them too)
Actually, Vod issued many MCB (Mandatory convertible bonds) over years. It means, once bond matures, instead of paying back cash raised through bonds, Vodafone have to pay bond holders in shares. If Vodafone is short of shares in treasury, they would need to issue new shares to pay bond holders.
Instead of issuing new shares, Vodafone pay bond holders treasury held shares (that Vodafone bought over time). Since, they cannot hold more than 10 % shares in treasury, I think, many shares got cancelled as well (probably more than half).
So, I think there is very little (if any) chance for Vodafone to get into financial trouble in near future. But market has its own way, and even though, I think Vodafone is robust company, market can give shares ridiculous valuation.
Vodafone market capitalisation about 7 yrs ago was ~ $200 bn and today it is ~$50 bn ... even though, there were ~58 bn shares (including treasury shares) 7 years ago and today there are ~29 bn shares (including treasury shares). I think, earning per share has decreased a lot too, but it could recover.
It all depends on general market movement. I think, Vod price may go down to 127 (dividend is 3.85 pence) but by evening it would recover a bit and my feeling is that, by end of week, SP would be touching 1.30 or may pass that figure.
I think, since some analysts do not like Vod paying dividend, Vod share price is subdued. Once dividend would be out of equation, Vod share price would give positive response, especially when (comparative company SP) BT is flying like eagle. Just a bit of guess.
Danielh: U r right. Fiat currency without gold, silver or any commodity to back it, has no intrinsic value same as bitcoin.
But fortunately, fiat currency is not like bitcoin, as fiat currency has some backing, that is State and government in power, who backs and give guarantee towards fiat currency they issued. U might say that, state guarantee is meaningless if state has no commodity behind the currency (as was the case in past), but that is not true.
Property we have, company shares we hold, car and other goods we own, marriage certificate, birth certificate, driving licences, travelling documents, Job security, health care security (in UK), well anything that gives us identity ... our rights & duties in the country, all is determined by state and government in power who [govt (state)] are guarantor. Same is true with currencies. State is guarantor of its value.
Unlike bitcoins, that has no guarantor behind the so-called currency, as long as state exists that issued, regulate and recognise the currency, currency would have value. Once guarantor (State) withdraw their guarantee towards the currency, that currency would become worthless. Today, most European countries withdrew their guarantee towards pre-euro currencies and issued new currency (Euro), hence old currencies have become worthless. U cannot go to a shop in France and buy anything using French Franc or go to Germany and buy anything using Deutsche Mark, just because state (France and Germany) has withdrew these currencies as legal tender, replacing it with Euro. On the other hand, since Switzerland and UK has not replaced Franc and pound with Euro, we can still use these currencies in shops.
So, even though Fiat currencies has no intrinsic value, it still has huge value behind it (state guarantee) that no crypto-currencies have.
Unless currency is commodity, they are worth nothing in their own right.
When we use fiat currency (£, $ etc), we are not using something that has any worth (intrinsic value), but we are using it because a government/state has given guaranteed (or promise) and backing for its worth. Once, govt take away that worth guaranty/promise, that currency would become worthless ... like what happened to European currencies once replaced by euro, other than value to collectors, but with crypto-currency, once it would end, even collectors value would not be there.
But then, as long as their are idiots who are willing to pay for such currencies, regardless of its real (or intrinsic) value (as there are no government backing for such currencies), there would be conmen who would keep making money at their expense (would create more crypto-currencies with different names).
But then, illusion, imagination & greed has no bound. If a bunch of people decides to pay for underwear worn by Maddona, they would pay and price of that underwear would keep going up. Even fake underwear would come in market with claims as underwear worn by Maddona, and people would pay. So who cares?
Your 10 pence or 11 pence per share is invested in the company. You may not see them in cash or in quoted price of share, but still, that is yours in your business (Nat West business) as the company belongs to you, proportional to the shares you hold ... where each share is worth 1 divided by 11,370,000,000 of the company.
I am sorry, I am making mistakes as I am doing calculation without calculator. Anyhow, I think, this is more accurate (sorry, if my calculation is still wrong):
NWG bought ~590.7 million shares from govt @ 190.5 pence. and now it is existing shareholders property. NatWest paid £1.125 bn for these shares.
Total shares in shareholders hand after sale is ~ 11.4 million
Total payment to existing shareholders = 3 pence direct payment
plus £1.125 bn paid to govt to acquire shares for existing shareholders plus 3 pence saved on shares bought = £18 million = £1.142 bn
or £1.143 bn divided for existing shareholders (11.4 million shares)
£1.143 bn divided by 11.4 bn =
£1.143 bn divided by 11.4 bn shares (held by existing shareholders) - ~ 10 pence per share
It means, Natwest paid 3 pence per share directly and 10 pence in share buyback = 13 pence
NWG bought ~590.7 million shares from govt @ 190.5 pence. and now it is existing shareholders property. NatWest paid £1.125 bn for these shares.
Total shares in shareholders hand after sale is ~ 11.4 million
Total payment to existing shareholders = 3 pence direct payment
plus £1.125 paid to govt to acquire shares for existing shareholders plus 3 pence saved on shares bought = £18 million = £1.142 bn
or £1.143 bn divided for existing shareholders (134 million shares)
£1.143 bn divided by 134 mn =
£1.143 bn divided by 10.34 bn shares (held by existing shareholders) - ~ 11 pence per share
It means, Natwest paid 3 pence per share directly and 11 pence in share buyback = 14 pence
[Sorry, I wrote 15 pence instead of 14 pence per share).
NWG paid ~ 15 pence dividend to shareholders this month.
3 pence was directly and 12 pence was indirectly - purchasing shares from govt.
15 pence dividend on £1.9 share price is around 8 % dividend payment (directly and indirectly) to existing shareholders.
Future seems quite bright, as TIER 1 value is still over 18 and one can expect further dividends, growth in profit (as NW also purchased £3 bn mortgage investment and bank is growing) plus expected substantial growth in share price to come
EE – £21: Unlimited minutes. 4GB data. 12M contract."
EE belongs to BT along with Plusnet. So, there is much more in BT than just providing services in UK.
BT is multinational company with various interests. For instance: ... BT provide services in UK, Europe, America, Australasia, Middle-East, Africa ...
Have a look. Loan is available, LTV = 75% to 100% of retail property value.
https://www.christiefinance.com/commercial-mortgages/retail-mortgages/overview/