Matrix European Real Estate Share Discussion Threads

[tim00] 06/5/2010 17:26

I suspect it might Karl, and I wouldn't mind a bit!

[karldinnel] 06/5/2010 17:22

LOL. Agreed Tim, but I suspect that if Matrix did spend 44 million quid on buying back shares the share price might move up a tad above 120p before they completed the transaction...

[tim00] 06/5/2010 17:09

I accept that for leveraged companies, or companies with uncertain markets like M&S, share buybacks may be counter productive. But none of your examples are similar to MERE. MERE has a relatively small amount of surplus cash, which in current circumstances can either be used to repay more debt or buy back shares, or be used to finance dividends/special one-off payment to shareholders. Despite your valid arguments, I remain strongly in favour of buy backs. Unfortunately, I don't know of any other property companies that have gone down this route recently, so can't give you valid examples. However, if you took the logic to the extreme, MERE currently has around £44 mn cash, which it could use to buy back 36.6 mn shares @£1.20 (you said the share price typically didn't rise). The remaining holders of 1 mn shares would have net assets of about £64 mn, yielding an annual dividend of about £7 mn. So the dividend yield would be about 580% according to my arithmetic. I could live with that, and wouldn't mind too much if the share price fell!

[kenmitch] 06/5/2010 16:50

tim00

But the money spent on buying back the shares could have been spent on an increased dividend anyway on the larger number of shares.

Detailed research from Morgan Stanley a couple of years ago found that Companies buying back saw their share price performance do far worse than Companies who did not buy back almost without exception.

The theory behind buybacks is fine - but Company after Company has tried it and regretted it. Ask Stuart Rose at Marks and Spencer. Went for a £1 Billion buyback at £4, only to see the share price fall to half that within a few weeks and it is still below £4.

Or the classic. Luminar. When I held their warrants I was staggered when they decided to go for a huge buyback when the shares were at an all time high, around £8 from memory, and they borrowed heavily to do so. Debt then became a huge problem for them and not long ago the shares were around 25p!

Eurovestech - an Investment Company with impressive Management decided recently to spend £2 million or so on a share buyback because they were fed up with the large discount to NAV. The share price dropped after the buybacks.

The theory is fine. Some never look beyond the theory and check out what happens when Companies do it. Ask the banks - they spent a fortune on buybacks, ahead of asking their investors to cough up a small fortune in rights issues after that.

As I said in the previous post it is better to give examples of where buybacks have worked rather than the arguments for them. The case for them seems convincing.

EDIT.

Having just seen the other replies. I agree buying back shares worth £1 for 40p or less, much less in the case of Dolphin Capital looks a no brainer. But extraordinary as it seems, when actually done it isn't. I suppose if taken to extremes, with a huge number of shares bought back it might work. It certainly would if they bought back the lot.

As explained in the earlier post - Finsbury Pharma bought back 40% of their shares and it proved a waste of money.

[affc21] 06/5/2010 16:37

kenmitch - they (MERE) would not be buying back shares on a like for like basis (ie a pound for a pound), but would at this moment in time (at todays share price) be buying back the shares at a 60% discount (ie a pound worth of property for 40pence).

[karldinnel] 06/5/2010 16:35

The point is that share buybacks don't always work, but I imagine that is only at those firms that don't pay dividends.

You don't need to be great at arithmetic to know that if you divide a million quid among 2 million shares, it is better than dividing it among 4 million shares. So, once MERE start paying dividends again fewer shares in issue would be better for all of us...

[tim00] 06/5/2010 16:22

you're right ken, much better to either sit on the cash and earn about 1% interest per annum, or buy more property when there's a risk of meltdown in Spain etc. How on earth does buying back shares at less than half NAV, thereby increasing subsequent dividend payments per share, not work??? This is a company set up to provide a steady income for its shareholders from rental income, share buybacks from surplus cash are highly effective in increasing the dividend yield.

[kenmitch] 06/5/2010 16:15

Can't see why there is so much enthusiasm here for Matrix to go for share buybacks.

These rarely work, either for Investment Trusts/Companies or for ordinary Companies.

A good example is the excellent Finsbury Worldwide Pharmaceuticals Trust. Over the last 3 years they have bought back over 40% of their shares, and yet they failed to achieve their aimed for discount to NAV target of 6%.

Another is Dolphin Capital. They spent huge sums on buybacks and it did nothing for the massive discount to NAV.

And away from Investment Companies BP have spent over £25 billion on buybacks, mostly at prices higher than the current share price.

So those posting here thinking that Matrix would be better off buying back their shares instead of investing it might like to provide some evidence of where buybacks have worked?

I hope they don't waste any money at all on buybacks, because a waste of money is what it is.

[karldinnel] 06/5/2010 12:49

Yes, Kimboy. If Matrix are a reliable, honest crew, looking out for the long-term interests of the MERE shareholders, that is a fair conclusion.

I have no evidence that these guys are anything but above board and honest, but the seemingly grudging nature with which they impart information to us private investors does make me nervous sometimes. Maybe it's because I've been burned too many times by other investments in the past...

[kimboy2] 06/5/2010 12:08

Perhaps they intend to do some buy backs.

[karldinnel] 06/5/2010 11:08

Forgive me for being facetious but why should they? What's in it for them?

I haven't seen any evidence of PR from the people who run this trust. The only other time they made a statement about the IZD Tower in recent months was because they were forced to after we were discussing that Austrian news report that said they had sold the tower. Even then, they issued an RNS that was ambiguous...

Meanwhile, the most recent announcement was timed at 4pm in the afternoon after the stock market had already started a general decline. Are we to believe that the deal was finalised at, say, 3pm on Tuesday?

As far as I am concerned, Matrix for some reason are not interested in seeing the share price rise (at least over the short term). I'd like to know why...

[sand dollar] 06/5/2010 10:48

Now that Matrix seem to have all of their ducks in a row, I think they should be going out with a presentation to the institutional investors, this now needs a bit of PR, they have a good story to tell, and lets face it there aren't that many opportunities to make money at the moment.

[kimboy2] 05/5/2010 17:10

It will mean a lower conversion price for the LBG stock presumably.

[karldinnel] 05/5/2010 17:05

Yeah, it's a shame isn't it? If MERE had chosen last week to make this announcement, I'm sure we'd have seen 170p by now, but for reasons known only to Matrix they decided to wait until the markets were on their way down...

Maybe they'll wait a bit longer before doing the share buy back. I suppose if they wait long enough the shares will be down below a pound again and they can buy back more shares for less money...

[puzzler2] 05/5/2010 16:30

Thought I'd top up, as my Selftrade account is showing a price of 112p - but I've been asked to pay 121.4p - someone's having a laugh.

[karldinnel] 05/5/2010 12:50

Well, well, well... How sneaky those City boys are.

A few months ago I wanted to sell a few of these shares in order to take advantage of another situation. Only problem was that my broker wouldn't allow me to sell more than a few hundred shares and I needed five grand!!

As an experiment just now I requested a sell of my entire holding (a dummy sell) and I was quoted a price for the whole lot!!!!

Meanwhile, when I was trying to buy some this morning I ended up having to instruct my broker to buy the shares manually...

Seems someone out there wants our shares on the cheap. If we wait long enough they will pay us a fair price for them though. I'll sell up for £2.50 tomorrow! You make me wait, and I'll want £3 and several dividend payments along the way...

[karldinnel] 05/5/2010 11:55

er... are we?

[geng] 05/5/2010 11:10

Spread closed now - and We're Off!

[tim00] 05/5/2010 09:39

not many break clauses though are coming up for our properties kramch, your point is a good one but our tenants are locked in to existing contractual arrangements.

THE AGM gave authority to buy back shares beyond just the LBG shares. They should buy the shares as cheaply as possible imo, the timing of the LBG buyback is pretty much irrelevant - assuming a price for those shares has been agreed. In the meantime, MERE needs to get the share price up or LBG won't sell, period.

[kramch] 05/5/2010 09:20

The RNS doesn't mention buying back shares in the market, only the "potential" buyback of...shares held by LBG. They would be foolish to start buying in the market before they had concluded the purchase from LBG, which, by their phraseology, is not yet finalised.
Talking to a friend who manages European properties he indicated a lot of German (he was referring to office) property is "over-let" by c 10%, and some around Frankfurt, by 20%, with new leases being agreed at lower levels. Hopefully this is reflected in current valuations but we need to bear it in mind when estimating future cash flow & profitability. K.

[karldinnel] 05/5/2010 09:01

Loads of buys going on over at Plus, I see...

Presumably the market makers are selling the shares they picked up at 110-115p during the past few days in order to turn a quick profit. Once they run out they should move the price up again...

[tim00] 05/5/2010 08:51

If MERE is buying today, we should see lots more 5k buys at some point today, given that shares are being sold. Also, if MERE is buying, they will have to RNS it within a day or two.

[karldinnel] 05/5/2010 08:50

Would they start this soon? Don't they have to wait for the funds from Benko to arrive in their account...???

[tim00] 05/5/2010 08:46

don't know, but it could be.