Aviva Share Discussion Threads

[whatsup32] 28/3/2021 14:00

It’s really a case of is Aviva undervalued and to what extent . If let’s say it’s 50% undervalued (i don’t think it is)then benefits of buyback become compelling.

[scrwal] 28/3/2021 13:57

The problem for me is that the cash to be given back has arisen from asset disposals and not from income and is a form of capital so returning it has to involve a capital reduction which is permanent, as the share price can only rise as a result of the performance of the remaining assets.

A share buyback which would be over a long period of time would keep the share price stable as the cash used is equalled out by the cancellation of shares involved. The size of the company will shrink over this period.

Special dividends of say £1 would result in a £1 drop in the share price and no recovery - (you have the option to reinvest the dividend if you want). The div received is offset by the capital loss.

The shareholders preference as to how the money is returned will be based on their personal tax circumstances but if the shares are in an ISA or SIPP tax is irrelevant.

[whatsup32] 28/3/2021 13:46

Kenmitch

Since we are providing examples

Kingfisher also did a share buyback and witnessed its share price drop from £3 to £1.50 and in the past year rebound from £1.50 to over £3 .
If it spent £1B buying their shares back then that’s a return of c50% profit (unrealised) . Not a bad return wouldn’t you say for all shareholders.

[1robbob] 28/3/2021 13:21

The return of capital to shareholders is very simple

Special Dividend(s) between now and the end of 2022, to coinside with the receipt of sale proceeds. With the option for shareholders to take the equivalent in B shares (which will be repurchased immediately)
This gives shareholders the option to take the Capital Return as either Income or Capital, for tax purposes

As the dividend has already been adjusted (cut!) to take account of the changed shape of the Group, there is no need whatsoever for a Share buyback

[kenmitch] 28/3/2021 13:09

Whatsup32.

No. When a share is falling, it’s falling. No way market makers or however the priced is fixed is consider whether or not that Company bought it’s own shares back, nor if they did, to what extent.

A share will go up of if investors buy it and down when they don’t. Buying and selling decides the share price, not buybacks.

So a share like Microsoft which you gave as an example would have gone up anyway because investors warmed to it. Ditto in reverse Whitbread because they didn’t.

Years ago Morgan Stanley did detailed research which showed that Companies that bought back their shares went on to do worse than those in their sector that didn’t.

If a Company or run very successfully it doesn’t need buybacks to try and lift the share price. And if a Company is unsuccessful buybacks won’t support the share price. Luminar tried doing that and then went bust a few weeks later.

Run the business well and shareholders will get rewarded. Forget about artificial means of trying to get the share price up.

[careful] 28/3/2021 13:05

£460bn of liabilities and a £46bn turnover.

£4bn is peanuts but every little helps.
They should just give a modest special divi and keep the remainder.

[whatsup32] 28/3/2021 12:50

Let’s say Aviva made £4Billion payment in special div of £1 per share, minimum of 25% and max of 40% of that will go to HM in tax. That’s £1B minimum going to pay tax.

If however £4B is used in buybacks ,I’m guessing no tax is paid so benefits all shareholders.

special dividends is a huge shot in the arm in a short time where as buybacks are spread out over months and years so doesn’t have the same effect.

I understand companies that have made buybacks had their value drop , I would argue their share price would have dropped further had there been no buybacks.

[eurofox] 28/3/2021 12:41

yes, spud, a gradual drip of excess capital back by way of quarterly dividends, over say 5 years, would encourage long term holders to stay loyal to some extent

[spud] 28/3/2021 12:31

The only way to truly return our cash is to return it via a special or by restoring an above average twice yearly or quarterly dividend. spud

[dr biotech] 28/3/2021 12:31

Looking at the bigger picture - a lot of the brokers and press are saying its a buy as AV will return a lot of excess capital over the next few years.

But at the moment AV has a market cap of 16bn - lets say that valuation is £13bn for the business and 3bn for the excess cash. Why is it that returning that cash should somehow result in the remaining business being worth more? The assumption is that shareholders will be better off but I don't see that as a given.

VOD and SLA returned a lot of cash after they sold significant parts of their business with mixed outcomes.

[father jack1] 28/3/2021 12:14

AB has done positive things but it is not yet reflected in the share price. Don't forget this is still trading slightly below the pre-pandemic level when shoddy management was in place. This should now be nudging 450.

[whatsup32] 28/3/2021 11:47

Kenmitch

Can it not be argued had Whitbread paid £2B in special dividends instead of buyback their share price would have fallen further then they did and hence those still holding on to their shares have actually benefited. Can it not also be argued Whitbreads share price fell due to other reasons then buyback of £2B.

Here is another example
Microsoft also has a share buyback program in place for past 10-15 years and their share price has done nothing but go up.

I’m not arguing for one option or other, just that if company does well it’s generally reflected in their share price . In Aviva’s case we had three sets of bad management .
At last we have management in AB that actually has done positive things that’s already reflected in their SP

I’m a long time holder.

[kenmitch] 28/3/2021 11:37

Another point. Why is Press/Investment magazine and then as a result bb poster comment frequently so positive about buybacks?

We can’t know for sure. But Company Directors like them as they are rewarded by buybacks. Brokers also trot out the supposed case for them and they pass that on to Press and Magazine commentators (e.g like Tempus and Questor columns in Times and Telegraph and magazines like Investors Chronicle). No wonder then that bb posters trot out the same supposed plus points!

[10acious] 28/3/2021 10:42

Return the excess cash directly to the shareholders.Let the shareholders resolve their own tax liabilities.Let the markets determine the share price.

[kenmitch] 28/3/2021 10:31

No, except for some, for tax reasons.

If a Company pays a big special but reduces the number of shares we hold at the same time it simply means they’ve given us our own money back. Quite a lot of Companies do reward that way. But I see it as no different to us just choosing to sell however many shares we want to if we wish to reduce our stake.

Obviously the share price falls at the start of ex dividend day by the amount of that dividend, but crucially we still hold the same number of shares. AND quite often new buyers at the lower price can see the share price ex dividend loss made up again very quickly.

[dekle] 28/3/2021 10:21

Suppose the company offered to buy back shares via an auction at say £4.50 (below the existing NAV) giving every shareholder the opportunity to sell a percentage of their shares. Would that work better?

[kenmitch] 28/3/2021 09:44

Share buybacks often give NOTHING back to shareholders. Only dividends and special dividends do that.

Here’s an example:-

Whitbread “rewarded̶1; their shareholders with a huge buyback £2 billion after the sale of their Costa business. Most of the proceeds went on giving shareholders that special reward. BUT note this! The share price subsequently FELL 50% AND fell from the start. So not only did their shareholders get nothing at all from that supposed “reward” they lost 50% for a time if not deciding to sell.

There are endless examples like that.

e.g before the coronavirus market crash buybacks were at record levels. They provided no support for the share prices this time last year.

The theory behind buybacks makes a lot of sense. Trouble is that theory rarely works in reality.

One big plus for buybacks is that Director bonus pay is often based on earnings per share. So far fewer shares in issue after that are cancelled when they buy back is very rewarding for Company Directors. That’s a reason they are so popular! So if that appeals to you then support buybacks.

Otherwise share buybacks reward those selling and not those staying loyal to that Company.

Who got “rewarded̶1; by that big Whitbread buyback? Was it those who sold on the news that would happen, and then perhaps bought their stakes back after the shell crashed?

Or did those shareholders who continued to hold to enjoy their “reward” do better?

DO look beyond the theory.

After all if “buybacks = higher share price” was reality all we investors would need to do to be be successful would be to buy the shares of Companies as son as they announce big buybacks. If only!

With dividends we GET that money. With buybacks we DON’T.

Make your choice, but I know what I want. Bigger than currently promised increases in dividends please or a series of special dividends.

Here’s an example. I hold FERREXPO and bought back at 125p. Ferrexpo throws off cash and has paid us about 40% in dividends and a series of specials in less than a year AND the share has nearly TRIPLED too. RIO Tinto who used to throw £billions away on wasteful buybacks are now paying specials on top of the very big ordinary dividends and are no longer buying back.

The following real life example might reassure those who wrote the two posts before this one. Also a big dividend yield should provide some support for the share price. And that’s already the case with Aviva. The share price, barring surprise bad news, looks a bargain. And dividends are more likely to see the share price do well than those buybacks that are so great in theory.....but so often the reality is different.

So Aviva PLEASE take that route and not the far inferior buyback.

[wadders5] 28/3/2021 09:20

For those with substantial holdings outside of an ISA and higher rate tax payer, the biggest problem/consideration is how the share price reacts in the 30 days after ex div. If it held at the reduced ex div price thats great, you can utilise CGT and get back in. If it recovers some or all of the ex div drop then you loose some or all of the benefit, or don't get back in. Its what method you use to then get round that risk.

[eurofox] 28/3/2021 08:28

to make the effect what most seem to want you would need a special dividend that had an ex-dividend date set to the very morning of the announcement because that is the only thing that would stop carpet baggers coming on board who drive the price up until dividend date and then drop it again immediately afterwards.

[ianood] 28/3/2021 00:27

oldfellow - at the current market price of £4 the market cap is roughly £16bln thus a £4bln buyback would equate to 25% of the market cap or 1 in 4 shares. This is obviously very simplistic as to buyback that number of shares would have an effect on the prevailing price and therefore the yield per share. The concern amongst many holders is that the price increase may not stick and that if it reverts to £4 then remaining holders are no better off thus they would prefer a payment or structure that makes a 25% (£1 per share) payment per share to each holder.

[whatsup32] 27/3/2021 21:23

If share price truly undervalues company by say 40% then buying back shares will benefit shareholders albeit less dramatically then paying special dividends.

[oldfellowme1] 27/3/2021 21:07

Please excuse my ignorance but if there was to be a share buyback of between bn3-4 what would that equate to per share?

[brian3777] 27/3/2021 20:04

Hi Spud.

I will wait to see what the company decides to do, then make a decision.
Lets hope the company uses the cash to look after all of us shareholders.

Hi Carpingtris.

The shares are bought back, and hopefully nullified, and not reissued as directors free shares, which I see happening from time to time.

If Aviva buys back shares, they have to be paid for, the cash comes from the balance sheet, cash in hand or bank.

That weakens the balance sheet.

When assessing shares I look at borrowings and cash belonging to the company, to see if the company is worth the share price at that particular time.

Share buybacks are not a good way increase share price.

Unless, the net asset value of the share is higher than the shares can be bought for.

Then......Fill your boots.

Brian3777.