Share buybacks?

londoninvestor

short_butt_sweet wrote: »

if you held H% of the shares outstanding in SLA before the return of capital, and they returned £1bn of capital, then you have received H% of £1bn, and you now hold H% of the (reduced) number of shares still outstanding in SLA.

that holds true regardless of the share price at which the return of capital took place.

So in round numbers, SLA is now a £7bn market cap company, after returning £1bn of capital.

Let's say you had £8000 of shares before, and now you have £7000 of shares and £1000 of cash.

What did you own before the return of capital? Really it was £7000 of "enterprise value" in SLA, and £1000 worth of cash in SLA's bank account. Now you've still got £7000 of enterprise value, and £1000 worth of cash in your own bank account.

Of course you could spend that £1000 on SLA shares. Whilst that might sound like it returns you to the position you were previously in, if you do it you'll actually own more of SLA's enterprise value than you did before the return of capital.

Thrugelmir

londoninvestor wrote: »

Interesting Bloomberg article on the topic of buybacks generally, and Apple specifically.

Did hear a while back that around 20% of all purchase trades of S&P 500 companies were company buybacks in 2017. Clever way of improving EPS and allowing management to hit incentive scheme targets. Flatters perceptions while actual trading performance is more mundane. While loading companies with debt.

Apodemus

Thrugelmir wrote: »

Did hear a while back that around 20% of all purchase trades of S&P 500 companies were company buybacks in 2017. Clever way of improving EPS and allowing management to hit incentive scheme targets. Flatters perceptions while actual trading performance is more mundane. While loading companies with debt.

Is EPS not calculated on net earnings, rather than EBIT? So if the buy-back is funded by added debt at the same gross earnings, then the EPS would fall?

AnotherJoe

AFAICS share buybacks are little different to dividends. Indeed sometimes companies offer "special" dividends which are no different to returning money like SL did. . The issue I think with these is that either they are intermittent with a see saw effect on share price, or if the company offers a higher dividend it's somewhat locked into that for the foreseeable and reducing it would cause a drop in share price as it would seem as if something is wrong.
By buying back shares gradually it levels out share price movements and it does increase the share price since otherwise unproductive money (otherwise why return it) goes back from the company where a shareholder cannot use it, to the shareholder, where they can.
Many US companies seem to prefer buybacks to dividends as a matter of principal , no one would bat an eye if a company increased its dividend by x% on account of having spare cash but if they buy back with the same cash some people think it's a conspiracy.

maxie014

Had a better read of the info now.
I received a capital return of 33.99p for every share i held prior to 19 oct with no dividend reinvestment option.
I now for every 8 shares i held,now have 7.
The share price has gone up slightly but my holding is now actually worth less,and i will receive less in dividends wont i?

eskbanker

maxie014 wrote: »

Had a better read of the info now.
I received a capital return of 33.99p for every share i held prior to 19 oct with no dividend reinvestment option.
I now for every 8 shares i held,now have 7.
The share price has gone up slightly but my holding is now actually worth less,and i will receive less in dividends wont i?

As I pointed out on another thread about this return of capital, the future dividend distribution will be spread across 7/8ths of the number of shares as before, so, all things being equal (profitability, etc), individual dividends per share should be expected to rise by a factor of 8/7, i.e. the total dividend you receive should be equivalent to what you currently get....

It was pointed out by another poster that profitability may be affected by the sale of the insurance business that gave rise to the return of capital though, time will tell!