Imperial Brands Share Discussion Threads

[minerve 2] 20/5/2020 15:12

fenners

Buffett made a mistake with the airlines. He has admitted to that, twice. It isn't really a good example to judge Buffett, Berkshire Hathaway or buy-backs.

Buy-backs are all about returns on capital.

If a company can buy back its share out of real profits and positive cashflow and get a return on capital greater than 20% it makes sense to do that rather than giving it back to investors who will most likely not have opportunities that better this. Of course, the price you buy the shares at is important. It is also important that other areas of the business are not neglected.

Some on here have lambasted IMB for exercising buybacks rather than paying down debt but I actually argue that with record low costs of debt and the share price at very low levels it actually makes sense to delay debt repayment, or even increase it, whilst these conditions remain. The sustainability of cash flow and debt repayment is not in question.

Unfortunately you get many analysts/columnists who haven't got the balls to go it alone, don't like calculating absolute intrinsic values and don't understand the issues that create real wealth in a company and just look at share prices, market caps and debt levels. They are just skimming the surface and need to discuss the real issues.

I'm actually starting to think that Alison Cooper has been wrongfully dismissed.

[loganair] 20/5/2020 14:51

Most companies buy back their shares at the wrong time for the wrong price and using debt to do so and they do so for the sole benefit of directors bonus and not for the benefit of share holders which destroys the companies Capital - the best example is GE in the US, Imperial is another good example.


What I prefer is what this company says - The Board may recommend the distribution of additional cash on the balance sheet through increased or special dividends should those funds not be required for capital expenditure or debt repayment.


1 - Capital expenditure for growth.
2 - Debt repayment to strengthen the companies balance sheet.
3 - Special dividend.


And a definite NO to share buy backs.

[fenners66] 20/5/2020 14:50

"Amusingly, after wasting much digital ink bashing buybacks in his annual letters, Buffett went off on a rant defending buybacks "


I had not studied BH before yesterday - I knew about it of course.

I have to say it took about 10 minutes to work out the modus operandi, and just why buybacks have to be central to BH.

Today I read the report above and it states that :-

"There is a more simplistic explanation of Buffett's style of investing at least in recent years: he will buy the stock of companies that engage in massive buybacks, such as Apple, even though his annual letter bashes companies that buybacks stocks, and he will dump all companies that halt buybacks, of which IBM is the most famous example."

As I said yesterday - its pretty obvious if you are buying multi-billion stakes in a company you are going to need a market you can sell into otherwise you will sink the share price on your own holdings.

Self interest a great motivator......

[fenners66] 20/5/2020 14:50

So about BH

"The firm began investing in the four airlines in 2016, after avoiding the aviation industry for years"

So I took American Airlines to look at as an example as we have previously looked at their buyback / debt figures.

Share price in 2016 about $40
2017 low was about $40 average about $45
2018 average probably above $40

We can speculate therefore that BH paid say $40

AAL share price at the end of March was $18 having skimmed BH's accounts it is not clear whether the airlines were sold by then - or after.
I guess after - when the unrealised loss at $18 may well have turned into a realised loss of around 75% at say $10.


BH does not pay dividends and relies on share price growth - ie. if you want an income sell your shares.

BH share price has fallen about 19% this year as well.

AAL's share price has been falling since early 2018 - despite buybacks.

I suspect that as he takes large stakes 10% + that he cannot exit a position easily and that buybacks of size provide the false liquidity required to be able to trade large positions otherwise he has both a positive and negative effect.

Buying a stake of 10% will boost a share - whilst selling 10% will likely trash it. He can join the dots as well.

However buying into the airline business which was racking up debt to support buybacks - which he had a vested interest in has done nothing for the share price of AAL for 2 years .

Now the black swan event has happened it is a mistake.

[fenners66] 20/5/2020 14:49

Minerve 2

I anticipated the Buffet reference coming up, as that has already been discussed on another board.

So I looked into Berkshire Hathaway's last results and did some research on them for the first time a couple of weeks ago.

It took me a couple of minutes to work out why buybacks are important to BH.

After that I found the commentary on BH's results.

That was then supported by commentary on the results.

I'll repeat those discussion posts below - the buyback debate referenced the US airlines whom had spent say $16-20Bn on buybacks.

[minerve 2] 20/5/2020 14:35

Exactly Essential.

I like buy-backs when done properly. The shareholder gets generally a GREATER RETURN than if paid a dividend.


Why should I forsake a better return because some chimp wants an extra few days in Benidorm?

[eeza] 20/5/2020 14:32

Financial sense not a quality in evidence at IMB, however.

[essentialinvestor] 20/5/2020 14:29

The issue with buybacks, at least on the LSE, is they are often conducted
at an inopportune moment and price.

They quality of the decision when to buy back stock is heavily dependent on the quality
of the BOD making that decision.

Next Plc is an example of a company that has generally used buy backs very astutely.
They have a formula for when their stock is trading below intrinsic value.

It worked well over the years, at least before COVID hit.

[minerve 2] 20/5/2020 14:20

fenners

Buy-backs are a great thing to do under the right conditions.

Buffett supports buy-backs like I do when they are executed correctly.

Are you now going to be fool hardy enough to tell Buffett that he is wrong?

You have no idea of cost of capital vs return on capital vs allocation of capital vs efficient balance sheet vs protection against takeover.

When you KNOW ALL THOSE, come back and we can have a more rewarding conversation about these things.

[fenners66] 20/5/2020 14:16

BOD'd who like buybacks , especially with increased debt , understand exactly how their business pays their next bonus.
People who support those buybacks - don't understand "Business"

[spud] 20/5/2020 14:14

Cancel the ridiculous buybacks and divert the saved money along with the saved dividend % to the debt reduction. Are you listening IMB?spud

[kaffee] 20/5/2020 13:33

LOL Minerve - you love a fight... and the last word

Nowt wrog with my statement above - but knock yourself out.

[minerve 2] 20/5/2020 12:04

People who generally dislike buy backs don't understand business.

[diggybee] 20/5/2020 12:03

I agree. Buybacks are lame.

[meijiman] 20/5/2020 12:00

Share buy backs ..a complete fiasco.

[minerve 2] 20/5/2020 11:49

kaffee

No, your comment is misleading. The word 'only' makes no difference.

Cash flow per price paid is better at IMG. End of story.

[dmore2] 20/5/2020 11:40

Too many people in the business,new ceo will have to thin the herd

[kaffee] 20/5/2020 10:56

Yes that is the point I'm making... hence the word 'only'

[minerve 2] 20/5/2020 10:31

"Cash Flow Per Share is only about 20% higher at BATS."

Maybe. But cash flow vs price paid is much higher.

You get far greater cash flow for your £ with IMB than you do with BAT.

[kaffee] 20/5/2020 07:19

For those who keep referencing the debt... BATS is £74 Billion according to ADVFN Financials.

Cash Flow Per Share is only about 20% higher at BATS.

[pete160] 19/5/2020 22:58

Growth investors have wanted IMB to reduce the divi to pay down the debt for years. This is what they're going to do, so why would growth funds sell in large numbers now?Income investors are not going to easily find a relatively secure 8/9% yield anywhere else, so why would they sell now?If they fall much lower it would pay someone to bid and break it up, or active investor to appear.Yes the new ceo might kitchen sink at the first opportunity, but we're surely something near the bottom here?

[essentialinvestor] 19/5/2020 22:53

Yes read the statement and that can change imv once the new CEO is in the seat. Let's see.


Notice that once again on the net debt there are ...reasons given.

The issue is if you read the last FY, the last interim...it's the same story, just different reasons.

[spud] 19/5/2020 22:50

Dividend to be rebased by one third; implying an annual dividend for 2020 of 137.7 pence per share-- Progressive dividend policy growing annually from the revised level thereafter, taking into account underlying business performance consistent with the policy outlined in July 2019spud