Imperial Brands Share Discussion Threads

[scobak] 10/9/2022 09:08

excess cash has to be used efficiently. My big beef is that buybacks are far from being that and are seldom made at the right time or price. A consolidation has the benefit of increasing the overall dividend per share assuming overall dividend is maintained. Any consolidation however could reduce the overall dividend whilst still increasing dividend per share.
The big problem with buybacks is that they are made at a variety of prices and not always the cheapest. A hit and run approach (which never happens due to various constraints) where the shares are bought back at opportune prices in the same way that we as investors endeavour to buy at the best prices never happens.
Marktime - Excellent post.
Jrphoenix - Consolidation is not a way of disposing of surplus cash but it does have the effect of reducing the number of shares in issue. The surplus cash can be used for either paying down debt, increasing payments to shareholders or purchasing other assets. My initial preference is debt reduction,the more expensive to service the first to go. I do agree that not all debt is expensive so I concur with you on that.

[huckers] 09/9/2022 14:29

marktime1231. Great post. Agree with all of that.

[jrphoenixw2] 09/9/2022 14:27

Scobak-7681: 'Sorry but I just do not understand that reasoning. Now if you had suggested a share consolidation then that does make considerably more sense to both company and shareholder.'

Not 'having a go' Scobak.... but...

I'm also having a problem with the above statement. I agree that buy-backs usually do not work as well as the basic theory suggests. As above that is down to factors such as market timing, having a not entirely 'secret' trading strategy+size to execute, thus creating a opposing target. But also, as seems common, the Directors issuing vast quantities of new shares (to reward themselves) at the same time the Co is buying them back.

But how would a consolidation change anything materially? Beyond having say half the nominal position having the same value and paying the same total dividend? Now if you happen to be talking about under US-listed instrument laws I could see a point where say trading commission rates are determined by absolute share price. But from what I see from chat here we're focused on the LSE listed shares.

ps. I also don't think it's a given that paying off debt is a sure-fire winner. For example if the profits earned from it's leverage exceed it's cost. Or if it's at a materially lower cost% that current refinancing might be... etc

[marktime1231] 09/9/2022 13:18

The worth of a buyback is when shares are trading at a considerable discount to par value (not necessarily rock bottom), albeit you have to use judgement to decide what par value is.

If you are still holding here confidently in anticipation of a rising share price you must think there is still a fair discount. What is your target? Remembering a scathing post #7175 here at the start of the year was sure we would see £14 again before £20.

I wonder how much of the recent share price progress is down to cable, has the value of IMB in USD moved much?

Another way to judge the merit of a buyback over debt reduction is to compare the cost of the dividend (now c. 7.2%) with the average cost of existing debt (approx 3.5%) or the cost of debt facility renewal (the last was US Treasury + 3.2% which is worryingly expensive despite IMBs debt reduction efforts to enhance credit worthiness). The gap is narrowing, and the cost of new debt was so surprising to me that I have now decided debt reduction or a buyback or a mixture is fine whichever. I do not expect Bomhard to throw surplus cash at enhancing the dividend which will only rise according to improving revenue per share.

A factor when considering buybacks is that institutional holders want one, presumably to allow those with an ESG agenda or those with super long investment horizons who see IMB becoming a stranded asset, to offload without clobbering the price. For example Scottish Widows (see #7440). Requests for buybacks were at the top of the agenda at the last AGM Q&A. Bomhard said he was open to the idea, well he kind of has to, but has since continued to prioritise debt reduction.

My feeling is that for now the banks have stronger voice than the big shareholders, so Bomhard will keep directing surplus cash flow in to debt reduction pro tem. And if the share price recovers towards £25 the opportunity for obviously cheap buybacks will have diminished. And debt will fall to such a low level IMB might be consumed for its gearing potential.

[norry2] 09/9/2022 09:43

Scobak - why would a share consolidation reduce the dividend? Normally the dividend would be pro rated up in line with the consolidation ratio.

[scobak] 09/9/2022 08:58

Morning VH. Thanks for that. It is probably the easiest way of understanding the theory that I have seen. As I said though the share consolidation route has many merits - can reduce the number of shares without necessarily raising the price or doing the dirty on the remaining shareholders (compare with Whitbread ), reduces the overall dividend whilst giving scope to increase divi for those remaining. It is an economic and effective way of managing the company assets.
Did you consider reducing debt. Very effective and efficient way of managing the surplus cash.

Thanks also to Spud who in a nutshell has encapsulated my thoughts ie that it doesn't work well except perhaps in much smaller (private) companies where your post of 7684 is more relevant.

[spud] 08/9/2022 22:53

Yes we're all more than well versed in the theory (advocates trot it out all the time). The trouble is, unless you're buying at the bottom (which never happens) and in excess of 50% of the float (which again never happens) it just doesn't work. spud

[valuehurts] 08/9/2022 21:47

Imagine a small business. You and 9 others own a share each so their are 10 shares in total. Your share is 10% of the earnings. 1 of the shareholders wants to sell his share so you use some of the money generated to buy his share and cancel it. Now instead of getting 10% of the companies earnings you get 11.11% Each share is worth more. Buy out another partner and the earnings are only shared with 8 owners so you get 12.5%

[valuehurts] 08/9/2022 21:33

A consolidation wouldn't do anything. Everyone would still own the same amount of the company.

[valuehurts] 08/9/2022 21:31

When they buyback shares remaining holders own more of the company. All the cash flows that would have been paid to the holders of the bought back shares go to the remaining shareholders. More cash for existing shareholders. Less and less shares but the company is the same size so your slice increases.

[scobak] 08/9/2022 09:04

ValueH, - Sorry but I just do not understand that reasoning. Now if you had suggested a share consolidation then that does make considerably more sense to both company and shareholder.
However a buyback suggesting the shares will soar then I can't see it occurring.

[valuehurts] 08/9/2022 07:12

And what would you do with the cash? Buy more shares? Better a buyback then. When they start buybacks this will soar...

[redbaron10] 06/9/2022 16:28

Well that is the consequence of Quantitative easing by central banks where they turn the printing presses on and increase the money supply.In the deflationary environment we've had for many years now,inflation never took off with all this 'cheap' money around,unusually.In years past,turning the money printing presses on would have led to higher inflation.The digital/tech economy and cheap Chinese imports has stopped the inflation of goods prices.The global economy became more productive and efficient, leading to deflation.Investors and funds went for growth stocks and saw the share prices (particularly of tech stocks) rise dramatically.No one wanted value stocks,relative to growth stocks,so shares like this slowly went down in price and the yields grew.Post Covid after much government spending by governments all over the world racking up huge debts, and Putin's invasion of Ukraine,it's a totally different ball game now.Interest rates are rising for the first time in a long time and there is quantitative tightening of money,especially by the Federal reserve.The returns from growth stocks in a higher interest rate environment tend to diminish and their p/e's contract.Value stocks, or bond proxys like this, tend to come into their own especially if there's talk of recession in the air too.The scramble for yield will continue imho,plus the weak pound helps earnings here.It is crazy how the markets react to things....appearing counter-intuitive a lot of the time,but herding in markets is a recognised phenomenon.Being a contrarian investor sometimes has its benefits.

[fenners66] 06/9/2022 10:37

Its absolutely crazy - whilst interest rates are next to zero and dividend yield here is double digit the share price is low.

As interest rates rise and cash starts to move towards investable the share price here rises and the yield therefore falls ??!

[tuftymatt] 05/9/2022 20:44

A recent Barrons write up has this at £22 from RBC Capital in the next year.
I think we can top £20 but don't know with the all the inflation concerns out there if we could go another 10%. Hope to be proved wrong though and really happy with where we are right now 👍🏻

[action] 05/9/2022 19:56

Tp of 2500p only possible with bid in sector.

[tuftymatt] 02/9/2022 08:38

Nice to see a couple of positive broker recommendations in the past few days and great to see the share price at around 1900.

To hold up that well in difficult market conditions shows how good a defensive play this is and I will add a few more today.

[philanderer] 01/9/2022 09:45

Barclays raises Imperial Brands target to 2,500 (2,300) pence - 'overweight'

[dartboard1] 31/8/2022 19:14

No wonder he watches the price everyday :)

[dosser50] 31/8/2022 18:54

Blimey spud. Hope you have an isa!

[spud] 31/8/2022 16:44

Yes, been a cracking investment for me and have picked up over £60k in dividends over the past few years.

spud

[philanderer] 31/8/2022 12:05

Goldman Sachs raises Imperial Brands price target to 2,250 (2,150) pence - 'buy'

[tornado12] 22/8/2022 17:13

Added more today as I don’t see this dropping back to £16 range where I started and need a good divi return for next few years, while inflation creates chaos in the markets. This & BATS I have loaded since start of this year

[tuftymatt] 22/8/2022 15:00

Yeah a great defensive play this 😀👍🏻

[redbaron10] 22/8/2022 15:00

Strong dollar.Hope it continues.Up we go.