Ashtead Share Discussion Threads

[ianwwwhite] 26/7/2018 17:31

Good afternoon all,

I know I said that I would not participate further in the buyback/dividend/debt reduction debate, but I have come back this afternoon to find that it’s become a bit like the Wild West on AHT, with people shooting from the hip, so I thought it would help the discussion to provide some factual content.

I commend the Bank of England Report ‘Share repurchase by quoted companies’ which although written in 1988 still makes pertinent reading:



I acknowledge that the Law may have changed in some respects since initial publication, but it’s still a useful primer.

[bracke] 26/7/2018 16:16

Good day Disco

"Think you’re obsessed with buybacks! Lol"
===========================================

Maybe with good reason.

[discodave4] 26/7/2018 15:59

Hi fenners,I hold shell, not the buyback IMO but they missed earnings forecast, hence the drop.Think you're obsessed with buybacks! LolDD

[fenners66] 26/7/2018 15:11

Thanks bracke

Nothing positive that we did not know already

but it did include

Downside of Buybacks

A stock buyback affects a company's credit rating if it has to borrow money to repurchase the shares. Many companies to finance stock buybacks because the loan interest is tax-deductible. However, debt obligations drain cash reserves, which are frequently needed when economic winds shift against a company. For this reason, credit reporting agencies view such-financed stock buybacks in a negative light: They do not see boosting EPS or capitalizing on undervalued shares as good justification for taking on debt. A downgrade in credit rating often follows such a maneuver.



Credit ratings negative light - for a company with £bns of debt and the prospect of rising interest rates ..... ?

[bracke] 26/7/2018 14:29

An article about share buybacks.

[fenners66] 26/7/2018 13:23

Shell announced a $25bln share buyback today and the shares have fallen
Its about 20% of their stock by 2020 so not insignificant
Market not impressed though.

[kilgallp] 26/7/2018 13:09

There are people posting here with far greater financial acumen than I possess/ever will possess. But for the record, my simple brain would back the paying off of debt.

As for the notes offering, that went completely over my head!

[rescuer] 26/7/2018 11:16

one of these days Bracke - but I'm not holding my breath.

[bracke] 26/7/2018 10:59

Good day rescuer

Fair enough. It's an AIM stock which I view akin to a lottery ticket.

One of these days you may hit 'pay dirt' with one of your picks.

[rescuer] 26/7/2018 10:31

recovery stock perhaps Bracke -

only looking at it as a recovery, no get rich quick - but they look good fundamentally at this price.

IMHO of course -

r

[bracke] 26/7/2018 10:20

Here is a link to rescuer's road to riches beyond avarice.



And the chart.....rescuer you really know how to pick 'em don't you!!

TLY WEEKLY

[fenners66] 26/7/2018 10:10

ian as you said you are not getting into it and have better things to do.

However we are a FTSE 100 company so perhaps someone else would like to put the case for buybacks ?

As I said I have not seen anything that convinces me of their attraction vs debt reduction / investing in more businesses.

I have included the EPS calculations which highlight 2.3% vs 1.3%

However the EPS as a result of less shares is really putting the cart before the horse.

As , all other things being equal is the caveat for the buyback - whereas reducing costs of debt is certainly not all other things being equal it is actively increasing profits.

Not withstanding it is expected that interest rates will start to rise (part of the justification for reissuing bonds to take advantage of current rates), so the benefit of lower debt should increase over time.

[discodave4] 26/7/2018 09:57

Morning Ian.Think I will go for b.Have fun ruining a good walk - as they say!.DD

[ianwwwhite] 26/7/2018 09:41

Fenners

Thanks for sharing your views.

Now with respect I could spend an inordinate length of time rebutting some of your views point by point…..

...or I could go and play golf whilst this brilliant weather lasts!

I favour the latter course of action and would refer you to my earlier post ‘I’m not here for an argument’

However it does occur to me that we are in danger of losing sight of our common objective – to make money, by immersing ourselves in the details over which we have no control.

Nevertheless for those that vehemently disagree with how the company is being run, there seems to be two courses of action open to them:

a. Sell up and move on
b. Suck it up and enjoy the benefits of owning a share in a remarkably well run company.

I don’t propose to comment further on the matter, I am happy to agree to differ, and keep my own counsel, as I have done largely since my first purchase in 1997.
.

[fenners66] 26/7/2018 01:13

Ian >

"I reviewed the current AHT buyback progress this morning, and thought it might be of interest:

Commencing: 15/12/17

Shares repurchased: 11,595,407

Cost of shares repurchased: £244,793,608"


Assuming your figures above are correct and taking the starting point of 499.23m shares issued

Then:

shares bought and held in treasury are 2.3%
If cancelled etc then EPS would rise by 2.3%

Since they are not cancelled I think they are still being included in the EPS calc so anal-ysts will ignore the benefit.

If the share price rises then the buy backs get more expensive and gain less in EPS...


If the £244.793 m had been used to repay the (say ) 6.5% second priority senior secured loan notes due 2022

That would in theory save a gross £15.91m a year in interest.
But there is tax to consider: I don't know which jurisdiction they are under
so using the blended US tax rate for the last year 34% this would mean £10.5m post tax saving

Which is equivalent to EPS gain of 1.1% based on current 195.3 EPS

However we know that US tax rates have fallen.....

If we use the UK tax rate quoted as 19% then the benefit would be £12.88m or 1.3% EPS

US tax rates are going to be closer to UK going forward.

Then you may ask what do they do with the £12.88m saving annually from then on ?
Well compound it and reduce debt some more increasing EPS again.

However it does not stop there. We know that everyone of these loans needs paying and re-negotiating periodically. Not only that but almost never get to term and always involve £m's in fees. These get shown as exceptionals even though they happen every time ( a big bugbear with me).

So wipe out the fees by paying off the debt and you save more....

Furthermore covenant tests are ignored completely where there is more headroom against borrowings - so for the future this must buy more safety.




"our net debt to Ebitda leverage would begin to fall well below our target range of 1.5 to 2.0 times. The big question I guess is, whether this is desirable or not?"

So take it well below. Why would it not be beneficial ?

Aside from protection from future creditors - its debt that kills companies before profitability - there would be more profit and cash generated from not having the debt interest to pay.

Also we talk about enterprise value. Whenever we look at the value of this company we take into account the debt. Its worth say 15x earnings less the debt.

Well less debt leaves more room for equity valuation.

Win win.


Falling tax rates re-enforce this view in my eyes.

I have not yet seen a convincing argument for buybacks - the only one I have seen is the US shareholders like them.
They also like Trump and hot dog eating contests ........

Once again the management have done a fantastic job here over the years - but like with a political party you may vote for - they may be very good but you do not have to agree with every policy.

Remember this is a cyclical business - no matter how long the cycle seems to run; when the cycle has run its course the debt will need paying and the share price will be falling.

Then the short term share price rise will and overpayment for the shares will look stupid.

Pay off the debt now and postpone any reckoning - I have been in here for more than a decade and expect to be still in in a decades time - so I don't care about the propping up of the share price this week / month - I want to look forward years and years....

[fenners66] 25/7/2018 23:10

Noticed the Dow jumped - what is the news ?

[fenners66] 25/7/2018 23:09

Rescuer was one of the original and knowledgeable leaders of the AHT threads and did much to organise us when the share price was on the floor.

A number of contributors to these threads got together for weekends away - including a presentation from AHT largely because of Rescuers effort.


He should have major skin in the game but I believe sold too early...

[discodave4] 25/7/2018 22:43

Guess there will be a nice bounce tomorrow thanks to Trump & Juncker.

[ianwwwhite] 25/7/2018 18:58

rescuer

Thanks for your views, I know that Ashtead management read this board from time to time, I am sure they will treat your suggestion with the seriousness it deserves.

Do you have skin in the game?

[rescuer] 25/7/2018 18:50

ian - i dont follow the thread, so apologise if my view is controversial, I think they ought to stop the share buy back.

The business model is exceptionally robust and they continue to be hugely cash generative, but maybe sometimes companies become like PI's, we all get greedy, I'd sell the entire buy back onto an Institution, at today's close price, pay down more debt with the proceeds and ready themselves for the next cycle.

There's plenty of healthy divi's ahead for those who are looking and plenty of share price growth potential with more organic growth.

This company must be the greatest turnaround story of the modern day market.

3p to £24 - well done Ashtead.


R

[ianwwwhite] 25/7/2018 18:22

DD4

You're welcome!

I'm aware that my views on the share buyback, and the extension of the 'notes' credit facility may differ from the majority of views expressed here, but I am content to let the matter rest there... :-)

I remain a long term holder..

[rescuer] 25/7/2018 18:14

evening all,

hope you are all well and enjoying life.

come across an interesting company a few weeks ago, I've got no position (ha ha usual story), anyways, looks interesting longer term.

take it apart, I know nothing about the industry or it's mkt place.

Looks good on paper, but ive now't to gain, so thought I'd share it for a pulling apart.

Totally (TLY).

could be a very good long termer IMHO.

ps

looking forward to meeting up with Canford Cliffs next month, wonderful invitation, thank you - hope to see Barty as well.

happy days

glenn

[discodave4] 25/7/2018 17:44

Thanks Ian for the info on the share buyback.Who am I to question Drabble et al, but would sooner have some of that spare cash than them buying shares when the PE is top end. As for the notes, well, enough said already! :)DD

[bracke] 25/7/2018 17:13

wearing Agent Provocateur
=========================

Only in the privacy of my own home........

I note the share price is back to 2300.

Perhaps the Trump/Junker meeting may provide the break one way or the other.

[ianwwwhite] 25/7/2018 16:59

Bracke

Ho, Ho, Ho,

Methinks he dost protest too much.

Now if I had suggested you were wearing Agent Provocateur I could understand your reaction.... :-)