Ashtead Share Discussion Threads

[fenners66] 14/9/2018 14:41

Good afternoon ian

You already did, but I can see why you would not want to continue

[fenners66] 14/9/2018 14:40

Disco - yes if they had paid another £93m in the first quarter they would have been borrowing to finance a dividend -
but
1, dividend was not due
2, they have NOT paid £300m in dividends over the same period
3, more importantly they are not planning on paying another £675m (or so) in dividends in the next 12m,

For the record I do NOT believe that you borrow or indeed have a rights issue to pay dividends with.
When companies do that it's tantamount to a ponzi scheme and you can see what happens to companies that do it.

[ianwwwhite] 14/9/2018 14:38

Good afternoon fenners,

I believe that in this case it is your understanding which is open to doubt, I have no wish to widen the discussion further.

[fenners66] 14/9/2018 14:35

as you well know - lack of profit is not what generally kills a company its the lack of cash.

[fenners66] 14/9/2018 14:33

ian - you can read the companies act - but that does not mean you understand the relationship between cash and profits.

I challenge you to show me any highly profitable company that has ALL its accumulated profit and loss reserve in cash

[ianwwwhite] 14/9/2018 14:28

I beg to differ.

Fenners contention was that the buyback was financed by increased borrowings which is patently untrue - see his post 55747 - that is the crux of the matter under discussion with DD.

As I said before, I have confined myself to posting factual information which would aid their discussion..

[bracke] 14/9/2018 14:11

"...... shares may be redeemed or bought back by a company only out of the distributable profits of the company or the proceeds of a fresh issue of shares made for the purpose: Companys Act 2006 sec692."
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Whether shares are bought from the profits and debt incurred for other purposes or the other way round it makes no difference.

The crux of the matter is that cash is being used to buyback shares that could be used to lower debt.

[ianwwwhite] 14/9/2018 13:50

DD

You're welcome :-)

[discodave4] 14/9/2018 13:19

Thanks Ian, didn't know that.

[ianwwwhite] 14/9/2018 09:30

Not re-entering the debate, but just felt I should point out:

Financing redemption or purchase of own shares
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...... shares may be redeemed or bought back by a company only out of the distributable profits of the company or the proceeds of a fresh issue of shares made for the purpose: Companys Act 2006 sec692.
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Enjoying your debate, does this alter anyone's thinking?

[discodave4] 14/9/2018 09:28

They used drawdown to fund much more than just the buyback.Understand your point but I had £76 in my pocket and £19 in my bank account and wanted to purchase a pair of jeans that cost £93, I also want to buy a nice new car too but cant afford it so I take out a loan to pay for the car and use the cash to pay for the jeans.

[discodave4] 14/9/2018 09:23

So following your logic if they increased the dividend by £93m it too would have been paid from debt.

[fenners66] 14/9/2018 09:19

In a nutshell it does not matter which jar you took the money out of - when you have emptied the jars and gone and asked the bank for more cash - you are adding to the borrowings through spending

and it this case that includes the buyback.

[fenners66] 14/9/2018 09:14

Disco - I am sorry you think that - I thought I had made it clear.


You have say £19 in your pocket and £76 wages due today.

You have a credit card and you want to go on the lash tonight.

However you also want to buy a car so that you can get to the new job next week that pays better.

Not only that but the credit card is just about to add some calculation FX rate change that will take any outstanding balance next week up by 5% and after that they add interest.

You decide that if you spend £93 on going on the lash tonight you have not added anything to the debt because you had some money, but you know that you are also going to have to spend £141 on that car.

You go ahead and find by Monday your credit card debt has gone up by £321

Did going out on the lash increase your credit card debt - or if you had not spent it would it be lower ?

[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.