Stagecoach Share Discussion Threads

[jeffian] 21/8/2011 17:22

worsleybird,

IMHO companies buying back their own shares is the worst way of 'returning cash to shareholders'. For a start, it doesn't do anything of the sort - it returns ALL the cash to SOME of the shareholders (who then aren't shareholders any more!). The theory, of course, is that having less shares in issue will boost both earnings per share and dividends and that the share price will follow, but as you point out in your example, Mr. Market is a perverse friend and doesn't always do what he's told! In fact, of all the shares I've owned where this has been done, I can't think of one which has benefited. The worst example is Enterprise Inns which spent nearly £1 BILLION(!) - enough to have returned £5/share back to shareholders - buying in and cancelling its own shares at up to £8/share. Price today? 43p. Phhh!

Believe me, SGC are definitely doing the right thing for most of us.

[worsleybird] 21/8/2011 16:50

Thanks guys for taking the time to explain what seems to be quite a complicated (to me anyway) procedure.

I also own Croda who are constantly buying back their own shares (aka once a day) but the buying back doesnt seem to be affecting the price at the moment, prior to the stock market chaos they were worth £20 per share, now trading at around £16+, really with all the buying back they should be in ezcess of £20+ - one just has to be patient I suppose and hope common sense returns eventually :)

[jeffian] 20/8/2011 13:02

slaterlpj,

"How am I better off?"

You're not, and it's not designed for that. It is simply what it says - a Return of Cash to shareholders. If a company feels it is carrying too much cash on the balance sheet and has no better idea of what to do with it to get a return for investors (e.g. via organic investment or acquisitions) it may as well return it to shareholders to decide what to do with their own money. I wish more companies did it! Far too many go off on acquisition sprees or, my own least favourite, buy back their own shares, and end up destroying shareholder value. Give me good old cash any day!

Although you're not "better off" immediately, one hopes the 'leaner' SGC will continue to perform as it has in the past. As I said in post 1320, this will be the third time SGC have done this, returning 128p/share from a share which would have cost you 30-odd-p in 2003 and still leaving you with (a slightly reduced number of) shares worth around 240p.


Not bad, eh? Let's hope it continues.

[slaterlpj] 20/8/2011 11:56

Since it has to be approved by shareholders, presumabley the large investors must derive benefit. Is this confined to the improvement in company profits and thereby large investor returns, or something else more direct to the large shareholder?

[trt] 20/8/2011 11:45

There is no benefit to the small investor, the only real benefit is for the company.

[slaterlpj] 20/8/2011 09:56

Hi uknighted - thanks for that.

That's broadly what I thought.

But if I wanted to reduce my investment I could do it myself. But as I dont, I have to reinvest the portion of MY investment that sgc returns to me in cash. There is no point keeping it in the bank, so I have to invest it to make it work, or spend it, which is not the point of my investment money.

So I'm only better off in the sense that the company has reduced costs and that should make it more profitable, and hence the share price in future should rise.?

Obviously there has to be benefit somewhere otherwise sgc wouldn't do this, but for me it's just and inconvenience, and I will incur buying costs to get back to the same amount invested in SGC as I had before.

So there is no immediate sense in which this is of benefit. If there is, I just can't see it.

[uknighted] 20/8/2011 09:04

Spj After the changes:
1. Your percentage ownership in the company remains the same.
2. You have cash which you could re-invest in the company and increase your % ownership, or dow ith as you choose.
3. The company has a smaller number of shares in issue thereby reducing future dividend costs.
Regards
UK

[slaterlpj] 20/8/2011 08:27

I'm still unsure about this.

It's a return of cash it's NOT a dividend.

Quotes from SGC website, Investor relations.

"The aim of the Return of Cash is to establish a more appropriate and efficient capital structure for the Group and thereby reduce its overall cost of capital and generate further shareholder value. "

Every 5 Existing Ordinary Shares held at the Record Time will ultimately be consolidated into 4 New Ordinary Shares. Subject to normal market movements, the Share Capital Consolidation is intended to:

Make the share price directly comparable before and after the Return of Cash; "

"The share consolidation ratio reflects the mid-market closing price of Existing Ordinary Shares on 18 August 2011" ------------

So the share price is expected to stay broadly the same. Say, appx £2.35 for the sake of argument. ( The share price at the 18th August).

So, If I have 10000 shares before consolidation, I will have 8000 after the 4 for 5 consolidation.

Before consolidation I have 10000*£2.35 = £23500 invested in SGC.
After consolidation I have 8000 * £2.35 = £18800 invested in SGC.
I get 47p per share.10000 * 47p = £4700 Cash.
So I have £18800+£4700 (£23500), split between cash and investment.

I now have a smaller amount invested in a smaller company, NOT the same amount.

Hence to get back to where I was, I have to reinvest £4700

How am I better off?

[trt] 19/8/2011 18:53

From iii - "Not sure it quite works like that...if it goes through you will end up with 4 new shares for every 5 that you hold now...so do the maths. 1000 shares now at 2.42 = £2420. Get 47 p per share = £470. End up with 800 shares so hope they r worth more than £2.43"

That would be right because 800 x £2.43 = £1944 then add your £470 = £2414 approximately, so virtually the same value as you started with £2420

[zho] 19/8/2011 17:54

Stagecoach, owner of the South West Trains and East Midlands Trains franchises, has risked the ire of passengers, green campaigners and trade unions with plans to return £340m to shareholders – including an £88m windfall for the brother and sister who founded the group.

Under the shareholder payout, worth 47p a share, Stagecoach's chief executive, Sir Brian Souter, will take away £51m and his sister, Ann Gloag, will earn just under £37m.

The announcement comes just days after commuters learned that they faced the highest rises in rail fares since the industry was privatised in the mid-1990s.

Regulated fares, such as season tickets, are based on last month's inflation figure, which was announced on Tuesday. Under the system, prices will rise in January by the rate of the retail price index – 5% in July – plus a further three percentage points. That equates to an average rise of 8% for season ticket holders, compared with 5.8% last year.

However, some fares could rise by as much a 13% under the "flex" system that allows train operators to add a further 5% to fares on certain routes provided the average increase across a basket of fares is no greater than the government cap.

Gerry Doherty, leader of the TSSA rail union, said: "It is a scandal that Sir Brian Souter is awarding himself a payment of £50m in the same week as rail passengers are told they will have to pay an extra 25% in fares over the next three years." Doherty, whose union is in merger talks with the RMT, also announced his early retirement, triggering a leadership contest.

Bob Crow, general secretary of the RMT trade union, said: "If anyone wanted concrete evidence that transport franchising in the UK is a licence to print money, then here it is. This is a third of a billion pounds stripped out of transport services and dumped straight into the pockets of shareholders rather than reinvested in services." Stagecoach, however, argues that it is a consistent investor in public transport in the UK, led by multimillion-pound funding of the bus industry – including a £7m investment in electric buses in Newcastle two months ago.

Stagecoach said: "The return of cash to our shareholders will have no influence whatsoever on rail fares. The government has decided that regulated fares need to rise above inflation for the next three years to help pay for more trains, better stations and faster services. All of the extra revenue generated from its decision to increase regulated fares by RPI plus 3%, rather than the existing formula of RPI plus 1%, goes back to the government.

"We invest more than £150m a year in improving our transport services for bus and rail passengers. Rail franchises we are involved in operating also made a net contribution of more than £250m to the taxpayer in 2010-11. Only around 4p in every £1 of the cost of a rail ticket in the UK is the profit train companies make on their rail services, with the rest going towards the significant cost of running train services themselves."

Revenues at the group's rail business grew by 8.4% in the three months to end July while turnover at Virgin Trains, which it co-owns with Sir Richard Branson, increased by 11.1%. This week Virgin announced annual pre-tax profits of £55.7m, although its results included a premium payment of £110m to the government. Last year Stagecoach's rail division, comprised of its two wholly owned franchises, made an operating profit of £48.4m. However, its buses are Stagecoach's biggest profit driver, delivering an operating profit of £153.1m.

Stephen Joseph, chief executive of the Campaign for Better Transport, said the payouts were the inevitable consequence of private companies operating public transport in the UK, but added that Stagecoach had demonstrated a commitment to investing in services.

"As long as trains and buses are part of the private sector then of course companies will make payouts on their profits, and that's the way it is. But Stagecoach does invest in its bus fleets and in many cases runs good services on the ground." Joseph added that CBT's main issue was with government policy on fares, which is set irrespective of shareholder payouts.

Rail industry sources also believe that train operators will not hit commuters with 13% fare hikes next January and are more likely to stick with the 8% average. "The market just won't be able to take that kind of increase," said one source.

[worsleybird] 19/8/2011 14:05

"as they paying out £ 340 million as a distribution in October then it could/ should be argued that the value of the company after this will be £ 340 million lower which is as they say around 20% of market cap

so if I buy today costs me 240
On 21 October I get 47 p
But the share price will fall once this goes ex dividend october 7

It will fall significantly when its ex div. The question is will it fall more than 47 pence from the price you buy at? If it does and you are a short term trader you have 'lost' if its less than you have a 'profit'"

COMMENT from iii bb
----------------------------------------------------------------
I think this is what I personally am concerned about - is the share price adjusted on 21 October by deducting this 47p - so in effect you are no better off than you were before?

[grahamburn] 19/8/2011 11:25

Good explanation, jeffian. Just one minor clarification. If the return is taken as income then there will be the standard 10% non-reclaimable tax credit attached to it, whereas taking it as capital will, in many cases, be tax free as it will be within the tax free allowance for CGT purposes. If, of course, it takes you above that allowance, then you would be paying 18% (or maybe even 28% if you're a higher rate taxpayer) on the gain, rather than the 10% tax credit (or the grossed up 32.5% extra for higher rate taxpayers).

The only slight bugbear with the capital route option is that the calculation of the actual gain is quite complicated, as I've found in previous capital returns as you have to allocate the original cost before and after the reorganisation. But not worth discussing that here as it doesn't affect the majority of shareholders: but Brian Souter must have fun with his CGT computations!!

[jeffian] 19/8/2011 10:10

The share adjustment is just to make sure that comparisons are like-for-like going forward.

This has been a fantastic investment for me, and they have done this twice before. I followed Brian Souter in at 37p many years ago and since then they have returned 18p/share in 2004 and 63p/share in 2007 followed by today's announcement of another 47p. You still have the same stake (albeit in a smaller company), you can choose to take the cash as capital or income to suit your tax position (i.e. probably tax-free), and you can reinvest the proceeds if you want. I would far, far prefer this to the fashionable 'share buy-backs' operated by many companies which don't give any cash back to most of their shareholders and usually don't enhance the value of the remaining shares anyway. This way, you get real cash in your hand and the choice of whether to take it or reinvest.

[worsleybird] 19/8/2011 08:48

ditto I dont understand the RNS either - on Sharecast it seems to be suggesting you get 47p cash returned per share. However, I am more interested in the potential 42% return over 2 years (see BB on iii for Stagecoach), potential takeover target etc.

I fail to see though how Stagecoach would encourage people to sell off their shares and drop the share price deliberately.

[slaterlpj] 19/8/2011 08:30

Can anybody explain this latest return of cash via a consolidation of ordinary shares at 4 new for 5 old?

SGC say the price after and before the consolidation is expected to be the same.

You will have less shares than before. (4/5ths)

So it seems the return of cash, is achieved by reducing your share holding, and you don't gain anything.

If you want to keep the same investment level in SGC you have to buy more shares either now or after the consolidation.

Couldn't you do just this yourself, by selling all your shares before the consolidation, and just buy back the same number new ordinaries for the same price after the dust settles? (sell and buy costs accepted).

[purple panther] 14/7/2011 11:36

could be an interesting dip to buy, no problems here are there?

[purple panther] 11/7/2011 22:13

Virgin Trains, a joint venture between Virgin Group Ltd. and Stagecoach Group Plc (SGC), is advising the U.S. Congress transportation and infrastructure committee about the possible sell-off of the government controlled northeast corridor, the Financial Times reported, citing Virgin Trains Chief Executive Officer Tony Collins.

Collins said Virgin is interested operating the Washington to Boston route, the newspaper said.

[steve517499] 04/7/2011 13:43

The London Oyster smart card is not ITSO compliant - always great to read articles were the first line is blatantly incorrect

[nellie1973] 27/6/2011 12:58

Broker upgrade today-Buy target 275p

[purple panther] 04/6/2011 11:48

Stagecoach led the transport sector higher last night, with the prospect of an improvement in unemployment trends driving sentiment.


The catalyst was a new circular from the scribblers at JP Morgan Cazenove.

Their point of departure was the assumption that "the UK economy will not re-enter recession, and that a recovery is under way". This – if it comes to pass – should bring more people into work. And more people in work means more people on buses and trains to and from work.

But while falling unemployment should boost volumes across the bus and rail businesses, earnings from the latter are likely to lag behind owing to the unhelpful combination of high franchise fees and lower subsidies. In other words, the best way to play these trends, JP Morgan said, is by investing in companies with big bus divisions.

Stagecoach stands out, for while it has a strong position in the rail business, it is "primarily a UK bus operator". Not just that but it boasts "higher UK bus margins than its peers", a strong balance sheet, and a history of returning cash to investors.

"Given this history, we believe it possible that cash could once again be returned to shareholders, adding a near-term catalyst," the broker said, fuelling a 9p rise in Stagecoach shares to 249.1p.

[jeffian] 03/6/2011 15:48

It isn't. You've posted 4 times today already!

[purple panther] 03/6/2011 15:29

blimey! still going up... why is this thread so quiet?

[purple panther] 03/6/2011 15:13

with 250 broken are these heading for 350

[deanforester] 03/6/2011 10:27

From one of the market open reports today:

Turning to the real thing, there are some interesting movements in the rail and bus sector this morning. Go-Ahead and Stagecoach, which have been initiated with an "overweight" rating by JP Morgan, are posting gains, but National Express, slapped with an "underweight" tag by the broker, is firmly in the red.