Ashtead Share Discussion Threads

[discodave4] 14/9/2018 08:58

Morning fenners.Sorry for repeating myself but I do think you are being slightly obtuse, deliberately so IMO, to support your views about buybacks (no offence).Have asked a couple of times now for your opinion on whether or not the buyback could have been funded from cash generated by ops (£76m) plus some of the cash already on the books (£19m), is it a yes or no?. TaDD

[fenners66] 14/9/2018 08:36

thanks 2flat

[2flatpack] 14/9/2018 08:05

fenners
great posts
real forensic accountancy
will take me weeks to digest
enjoying the debate
Thank to you all
cheers

[discodave4] 14/9/2018 00:11

Can you normalise it somehow with Q1 last year when there wasn't any buybacks?. Debt increased by £41m.Couldn't the buybacks still have been bought from £76m and £17m from the £19m carry over?.

[fenners66] 13/9/2018 23:10

The debt increased by £321m in the period.
FX differences were £121m of that
Debt acquired (with new businesses) 27m of that

So everything else increased debt by £173m

And of that £93m was the buyback

Does that help ?

[discodave4] 13/9/2018 22:46

Scrub - ditto for divs, point taken.Can we move on now please and debate something other than buybacks v. Dividends?.DD

[discodave4] 13/9/2018 22:39

"So clearly they would have a lower net debt if they had not spent the 93m this quarter on buybacks."Ditto if they increased dividends by £93m.Sorry fenners but you still have not supported your statement that the buyback was funded by debt - unless I missed that!!.DD

[fenners66] 13/9/2018 22:29

Posting that got me thinking there was a double wammy

£300m spent to date on buybacks - some of which was at higher share prices

However that cash would have come in US$ but the shares are bought in GBP

So there is a transaction cost on exchanging a huge pile of cash into £.
Then that would have been done during the slump in £ which is now reflected in the FX loss on the loans

All the while increasing financing cost.

Have all these factors been considered vs. the imputed increase in EPS. ?

[fenners66] 13/9/2018 22:22

Hi,
Looking at the cash flow, if the operations generated 76m out of which they spent 141m on investing in new bolt ons etc. then that is already negative, to add to that the 93m of buybacks its more negative.

The debt increased - in 2 ways
1 debt increased because they spent more than they had coming in...

"Increase in debt through cash flow 162.5"

2 Because the debt is denominated in $ it actually was revalued upwards in £
so
"Exchange differences 121.5"

Overall the net debt figure:
Increase in net debt in the period 321.4 m
Net debt at 1 May 2,712.0 m
Net debt at 31 July 3,033.4 m

So clearly they would have a lower net debt if they had not spent the 93m this quarter on buybacks.

We know that as a rental company investing in capital machinery all the time its going to have debt. It would take many years of profits to get to a net cash position a la Apple.

So the business is valued as an Enterprise as Debt + Equity

Just today someone on the VOD board was asking whether VOD could be taken over at £50bn equity + £50bn debt

It seems patently obvious to me that if AHT had lower debt then assuming enterprise value remains unchanged the equity value has to Intrinsically rise.

[discodave4] 13/9/2018 20:44

Hi fenners,The one thing I do agree with you about buybacks is they shouldn't be funded by debt- I assume unless the equivalent rate of return of the buyback is greater than the cost of debt or any other investment option.......and again I assume "we" don't know if that is the case or not!!.You posted:-"From the cash flow statement :-Net cash generated from operating activities 76.2Purchase of own shares by the Company (93.1)QED some of the added debt is from the purchase of the shares - that is before you take into account the investment in the business and if you then prioritise that before buy backsNet cash used in investing activities (141.1)It is there in black and white - borrowing to finance buybacks."====================================================As you know I'm no accountant, but where exactly does it state that the buyback was funded by debt? - opening cash £19m, plus £76m = £95m, buyback £93m.DD

[fenners66] 13/9/2018 15:10

Just to illustrate a point

" Number of shares repurchased: 80,000 shares

Date of transaction: 12 September 2018

Average price paid per share: 2,412.4700 pence "


That purchase seems to have done F all for the share price today.
Same as if a director sells 80,000 shares tomorrow.

Every day brings a reason for the price to move and always it comes back to supply and demand.

On a day when demand is high the price goes up - but that does not add intrinsic value to the company.

Reduced debt (with the same enterprise value); increased profits - they add to a company's intrinsic value and therefore should be a more robust long term value creator.

[fenners66] 13/9/2018 15:04

Disco

"Since the buyback started (June 2016) the share price to-date has increased by 150%"

And in the same time the quarterly earnings have risen 110%

[fenners66] 13/9/2018 14:56

Disco we say goodbye to £24 today ... so what ?
If the company continues to grow it will be back, I unlike those so eager to be the counter-party to buybacks, am not selling today.
Arguably I intend to remain a shareholder for the long term - as I have been.
As a part owner I want to see some more cash as a dividend (don't we all?).
I don't want it to be spent on those of little faith bailing out....

[fenners66] 13/9/2018 14:52

"This will often lead to a sharp decline in the company's stock price, because this is usually a sign of a company's weakening financial position"


and therefore the reverse must be equally as valid as that statement.


AS for paying for buybacks out of free cash flow, you are not reading the same Qtr1 accounts as me.

From the cash flow statement :-
Net cash generated from operating activities 76.2

Purchase of own shares by the Company (93.1)
QED some of the added debt is from the purchase of the shares - that is before you take into account the investment in the business and if you then prioritise that before buy backs

Net cash used in investing activities (141.1)

It is there in black and white - borrowing to finance buybacks.

[bracke] 13/9/2018 14:47

"QED: That's why cyclical companies would be ill advised to raise the dividend to unsustainable levels."
===================================================================================

So when the downturn arrives you do not expect AHT to reduce its dividends?


"Finally, I like disco have now tired of this circular debate, which has been well aired a number of times, I will not be responding to any further comments, I do have a life to lead.... :-)"
====================================================================================

I seem to remember you posting that previously.

[ianwwwhite] 13/9/2018 14:23

Bracke,

I fear that you are falling into the trap of posting unsubstantiated views, as others have done here to try to make a point which is patently flawed.

As far as dividend cuts are concerned, this from Investopedia:
'A dividend cut occurs when a dividend-paying company either completely stops paying out dividends (a worst-case scenario) or reduces the amount it pays out. This will often lead to a sharp decline in the company's stock price, because this is usually a sign of a company's weakening financial position, which generally makes the company less attractive to investors.'

QED: That's why cyclical companies would be ill advised to raise the dividend to unsustainable levels.

As for takeover targets, we are back in the realm of conjecture.

Finally, I like disco have now tired of this circular debate, which has been well aired a number of times, I will not be responding to any further comments, I do have a life to lead.... :-)

[discodave4] 13/9/2018 13:36

Hi fenners,Disco - I can not like buybacks and still love the investment/company - the 2 are not mutually exclusive.But your post inferred that the share price will not break £24 because the focus was on buybacks not yield. So hence my comment, if as an investor you feel the buyback is holding back capital returns then sell up and invest in something else that provides greater net return.Nobody IMO can say what this would be if they increased yield rather than go down the buyback route.....it's happened live with it or move on, that's all I was trying to say.Appreciate the debate here but we have had it numerous times now. I'm generally not too bothered one way or another (div or buyback) providing my overall profit / growth here is meeting my targets.All the best.DD

[bracke] 13/9/2018 12:35

Couldn't resist could you ian. LOL.

Not incurring debt to buyback but could use the buyback cash to lower it.

Failing to increase dividend because it may have to be reduced in a downturn is an invalid reason. Using that as 'reason' would result in dividends always remaining at low levels and never increasing with profits.

As to prospective takeover......more likely when the cycle turns or perhaps other way round. AHT buys another.

[ianwwwhite] 13/9/2018 11:59

Fenners, bracke,

I think that you are missing an important point, the buyback is flexible and can be turned off at any time, an unsustainable rise in the dividend in a cyclical industry would be a major trauma when it subsequently has to be cut.

'You can accept everything the directors do' - yes Geoff Drabble has earned my trust, he steered the company through the financial crisis having become CEO in 2007, and has overseen the subsequent phenomenal growth of the company, taking the share price from 150 to <>2400 in his 11 years at the helm. Top job!

[fenners66] 13/9/2018 11:40

I cant quote the accounts now - gotta go - check out the debt in value not some % of EBITDA it has gone up !!

[fenners66] 13/9/2018 11:39

"Why stick at 3x, why not 10x, 20x, or more."

That one is easy - 2x or 3x is LESS over the last year and next year etc than the level of the buyback - with rising earnings and with the buffer between funds spent between the 2 methods would remain sustainable with the same assumptions.

Lower debt and lower interest costs.....

You can accept everything the directors do.

I am sure that applies to the majority of investors in the majority of companies....

[ianwwwhite] 13/9/2018 11:39

Bracke,

I am a shareholder, so I do have 'skin in the game'

I promised myself I wouldn't get involved, but a couple of points you make cannot go unchallenged:
- AHT is not incurring debt to finance the buyback (I don't believe this is allowed)
- The buyback is financed by free cash flow
- If the dividend is raised to the heights proposed, and as AHT is a cyclical business, subsequently has to be cut in a downturn, there would probably be a mass selloff
- if the free cash flow is allowed to sit on the balance sheet, it probably makes us more attractive as a prospective takeover

[bracke] 13/9/2018 11:23

I am not a shareholder but I am in agreement with fenners.

Too often buybacks are used to inflate the share price for the benefit of Directors. I am not saying that is the situation with AHT. I think the money could be better used. We know that AHT is a very cyclical share and when the downturn comes, as we know it will eventually,cash is king not debt incurred in the buying of ones own shares.

[bracke] 13/9/2018 11:16

Language!!!!


I neglected to mention that the rise in £/$ will have a negative affect on the share price

[ianwwwhite] 13/9/2018 11:16

Fenners

Why stick at 3x, why not 10x, 20x, or more.

All are equally irrelevant, they were not on the table. I prefer to deal in facts.