Imperial Brands Share Discussion Threads

[marktime1231] 22/4/2024 13:13

Edged what?

The approx £1.5B net proceeds of BAT's disposal of an ITC stake being put to a buyback which will cut nearly 3% of stock spread over a two year programme.

vs

The second £550M tranche of IMBs ongoing buyback will remove another 3.5% of stock in just 6 months.

So in that race IMB is smashing BAT out of the park.

In BATs favour it is yielding nearly 10% on its current depressed share price whereas IMB is "only" yielding 8%.

[montyhedge] 22/4/2024 08:23

Both good shares but Bats just edged it with the stake in ITC worth billions and buybacks until the end of 2025 if I remember rightly.

[valuehurts] 21/4/2024 08:45

We should make many multiples of our money with the current strategy and you are after a 40 percent pop? Private equity is private not a fund and they mostly do not care about ESG etc.. they use debt to buy companies on the cheap then use the companies underlying cash flows to pay off the debt used in the acquisition. This is why all tobacco companies use a lot of debt and will continue doing so

[action] 19/4/2024 15:00

This is doing better compare to BATS

[shareideas1] 11/4/2024 16:55

Yes they are in a post Covid super cycle having been bailed out through Covid...

[fenners66] 11/4/2024 16:32

You mean the profit would go up,debt down, dividends and share price up and some non ESG fund would come and offer us a 40 percent premiumm and possibly sack some of the directors?
Terrible if you are a director without a contractual massive pay off. Not bad for every shareholder whom also get the chance to reject it of course.

[valuehurts] 11/4/2024 12:29

Lol if imperial reduces debt it will be taken over and loaded with debt by PE. They will always hold quite a lot of debt. They won't reduce it much further than current levels.

[fenners66] 10/4/2024 14:37

Sorry off topic but Delta airlines results just landed beat expectations and "no sign of demand letting up"

[fenners66] 10/4/2024 13:58

So then you are saying whilst holding up Buffett to be an amazing investor ...
that he got it totally wrong to invest in the US airline industry at all , any time as its not a good long term
business. Not just poor timing.

So he makes mistakes - very very big ones?

Why then do many quote as a reason for buybacks - its good enough for Buffett ?

Anyway I don't think the merits or demerits of buybacks have anything to do with it.
The institutions may not dictate that much to the BODs but one thing they do is share BB
since they hold the cards they get what they want.

[shareideas1] 10/4/2024 13:52

Right now yes... but hugely capital intensive and extremely cyclical earnings which create the natural boom and bust

[louis brandeis] 10/4/2024 13:51

So airline stocks have a medium-term trading opportunity based on post COVID under-capacity. That doesn't make them good long term investments. Their quality of earnings is poor, just like the residential house builders. Poor in the sense, not of size, but of long-term sustainability.

[fenners66] 10/4/2024 13:44

From a Jan 24 article ..

Delta Airlines pre tax $6.44bn +119%
United Airlines $5.16bn + 94%
American Airlines $3.26bn +52%

Right now they can charge almost what they want...

[louis brandeis] 10/4/2024 13:42

fenners

Yes, decreasing debt will increase intrinsic value and it is an option open to the management at anytime going forward.

Of course, generally, one has to be very careful with debt reduction because if the market cap is small enough reducing debt too far increases the chances of having unwanted suitors (funding buyouts with debt). And then, to the likes of you and me, the opportunity of benefitting from future earnings and cashflows disappears completely. However, I think this is very unlikely here. Perhaps likely with some of the small cap house builders ATM - Crest Nicholson, for example.

[shareideas1] 10/4/2024 13:29

Airlines are terrible businesses

[fenners66] 10/4/2024 13:26

Louis

You can increase intrinsic value for every shareholder by removing the debt (as explained above).

This is more relevant with a mature company and a declining market like IMB as they are less likely to
need further large funds to reinvest in the business in the future.
The new CEO seems to agree as he believes sticking to the knitting and improving the efficiency of the
core business is the way forward

[louis brandeis] 10/4/2024 13:01

Thank you Huckers. I appreciate that. :)

[fenners66] 10/4/2024 12:59

The US airlines have a great business.
Right now they can charge what they want (almost) and are charging more because they cannot get planes.

Their problems were caused by buybacks about 5 years ago.
Since they knew best they bought back cumulatively $100bn
Then covid etc and suddenly they needed , guess what , $100bn just to survive.
I think it was massive share dilution as well as govt funding that kept them alive - too big and too important to fail.

Buffett bailed and lost $7bn

[huckers] 10/4/2024 12:55

Louis. A very lucid set of arguments/explanations. Thank you.

[louis brandeis] 10/4/2024 12:54

Woodford made some mistakes that cost him. One of his mistakes was to assume retail investors understood what 'patient capital' means. Obviously the council involved didn't understand this word 'patient' and neither understood the mechanisms of an investment trust. Councils shouldn't be investing in such things. Lots of things were wrong around Woodford. All very depressing. Don't even mention Hargreaves Lansdown

[louis brandeis] 10/4/2024 12:47

fenners

1. I don't understand why you think it is different for Buffett. He is an ordinary shareholder the same as all the other Berkshire holders: It is a publicly listed company. He owns 16% and is the chairman. It isn't a private company. As far as airlines go the issues of his failure investing in airlines isn't to do with the buybacks it is more to do with airlines fundamentally being bad investments due to their ability to suck up capital for new aircraft (purchase or lease) whilst having zero competitive advantage and having to price like commodities.

2. OK, so make it obvious that the coupon rate is pretax. What is obvious is that sustained buybacks executed correctly overtime work for shareholder value. Spot decisions would include many variables some of which we are not privy to. So it is difficult for us to say whether paying down that debt was the obvious answer. If it was I'm sure it would have been done. You have to have some faith in the CEO and CFO, if you don't then sell your share.

3. If you payback the debt the problem seemingly disappears only until you might need to increase debt financing again. Don't forget credit investors have a market too.

4. Intrinsic value has EVERYTHING to do with buybacks. If shareholders are willing to sell to the business something that is worth £1 for 50p the business should buyback as many it can afford to. In this scenario you are increasing shareholder value for those shareholders that remain. The opposite to this is if you are executing buybacks at a share price of £1 when they are only really worth 50p: in this scenario you are destroying shareholder value.

5. I think you raise a good point which is what I refer to in that the business has to be a good one and on a sound financial basis to begin with in order for buybacks to work and also to be taken seriously by investors that know what they are doing. I think you do have an argument to pay some more debt down but there is an opportunity cost with buybacks and future interest rates are (were?) expected to fall.

[fenners66] 10/4/2024 12:37

As for just how much liquidity matters more to institutions look at Woodford.

He made an absolute fortune for himself playing with other peoples money.
It really did not matter if their investments went up or down he got a % .
Could there be a more damning indictment of that then the suspension of his fund so no one can withdraw
and he was still taking a % out ?!

There he is making a fortune - until it all falls apart after an institution wants to pull its cash out and there
is no liquidity.
All the other fund managers who had not learned by then suddenly woke up - liquidity is key and stuff the
arguments of the investors

[marktime1231] 10/4/2024 12:30

et tu spud

[fenners66] 10/4/2024 12:15

boomdaboom "In the long run the only thing that determines the price of a stock is the earnings per share"

Too simplistic.
If you have a company with EPS and no cash - there is no long term.

[louis brandeis] 10/4/2024 12:09

"In the long run the only thing that determines the price of a stock is the earnings per share."

Or net asset value per share if it is real estate/asset based.

[fenners66] 10/4/2024 12:08

Louis -

1, already mentioned Buffett and why his buying back BH is different for him. You may not know that what is good for Buffett he does not think is good for either most companies he invests in or those he does not trust to value their own shares correctly. He also broke a habit of a lifetime some years back and invested in the US airline industry who were embarking on $100bn in buybacks (normally he does not buy companies that do em) and lost $7bn on the stakes when they needed emergency funding to save themselves - $100bn of it .

2, Of course I know the pre / post tax position of debt finance and some time back did the numbers. Post tax return on repaying IMB's expensive debt instead of buyback gave a better return.

3, Regarding ESG - you seem to be agreeing that because of "other restraints " refinancing existing debt may not be optimal - agreed so spend the buyback money on repaying the debt and the problem disappears.

4, What is this intrinsic value/ cost of BB got to do with shareholders ? They own the company - dividends are not a cost to the company they are giving the shareholders their share of profits.

5, Enterprise value (often misunderstood) is hardly ever discussed when writing about buybacks. I think it is too complicated for some. A company's worth is what the market thinks it is. A discounted future cashflow or a dividend model or PE based on EPS or all the assets + future earnings.... etc. But whatever model someone is using that Value is reflected in the make up of the shares and the debt combined.
The BB theory is if you reduce the number of shares you increase the remainder value. But you also reduce cash (important when credit is tight as the lack of cash kills a business) or you increase debt. When you do that you reduce earnings or earnings potential - if you have more debt you have more finance cost -if you have more cash - like Buffetts BH $100bn + you get $bns in interest (at the moment). So if you value the business on an earnings basis the relative enterprise value falls.
But if you remove the debt , earnings increase and the % of the enterprise value reflected in the shares goes up.
To give an example people can understand - take a house with a mortgage - reduce the mortgage and your value of the equity in the house rises. Not only that but with a lower LTV you get a better interest rate.

But all that is irrelevant to the institutions that buy the shares with our money who therefore control the boards and demand liquidity of buybacks.