Heres hoping.
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Surprised to see SKT down on the ASX, the announcement wasn't that bad was it or am I missing something here?
So is the proposed capital return in the price already....?
My uninformed guess is there may have been a cohort that had taken short-term positions on the hope/expectation of either a takeover-type deal being announced, or near-term special div. The lump sum capital return being so far away on the calendar probably scuppered their plans for a quick flick, so they’re bailing now at probably a modest profit, possibly with intention of jumping in again closer to the time. May also be longer-term holders in a similar boat having run out of patience.
Pure speculation though.
I’m not so sure the way this ‘Capital return’ is being planned is such a great result for a lot of investors. The important part of the announcement for me is where they say in the Market Release on page 3,
“All capital return options were reviewed and after careful consideration, including taking into account shareholder feedback and input from advisors, the Board will propose ….. a return of capital of approximately $70 million through a Court sanctioned pro rata share cancellation – a return of approximately 40 cents per share held on the record date to shareholders. This approach was selected as the most appropriate way to return a significant sum to shareholders, offering a fair and efficient mechanism that treats all shareholders equally.”
Then in the footnote they elaborate further,
“The capital return will result in the cancellation of shares, with shareholders receiving payment for each share cancelled. The price per share cancelled and cancellation ratio will be determined closer to the time, and are expected to be set such that, where no rounding is applied to a shareholder, that shareholder will receive 40 cents per share held on the record date.”
It seems to me that the cancellation of any shares is entirely unnecessary, as the proportion owned by each holder will stay unchanged as previous posters have noted. However, if they are going to cancel shares, what price will they use to value those shares, and therefore how many of each individuals shares they will cancel in return for the capital being paid to each shareholder? It seems logical to me that they would use the market price at the time, which, depending on what a particular holder’s dollar cost average is, could severely disadvantage that holder.
For example, say I own 150 shares which cost me $3 each [$450]. Currently, the price is around $2.61 – say that Sky use that price to value each share they cancel, and they want to return 40c per share. So, they’ll return to me 150x40c = $60, which at $2.61 per share, means they will cancel 23 of my shares. Now I have only 127 shares, which cost me $450-$60=$390.
$390 for my 127 shares means I’ve paid $3.07 per share, so my dollar cost average has actually increased! So this is hardly the fair mechanism that treats all shareholders equally! It’s great for all the instos who bought at 12c [equiv of $1.20 after the share consolidation] in the capital raise, but for those like me who bought shares way back at $3 [equiv of $30 after the share consolidation], this is just a forced sale which capitalises the loss on my shares.
If they simply pay me 40c per share I hold, but leave the number of shares untouched, then at least my DCA is reduced, ie I still own 150 shares that cost me $2.60 [$3-40c], irrelevant of what the market price is for the shares currently.
If someone reading this disagrees with my logic, I’d love to hear from them, but this is where I’m at after much reasoned thought.
So we're getting paid a dividend in Sept worth about 3.1% using a SP of $2.70, plus depending on shareholder vote, another lump sump in Nov from share cancellation worth 40 cents? I know less share out there is good news but I agree with CZ above that if the share price ended up under-performing then we'll actually be worse off in the short term. A 3.1% return is not very impressive given that its well below the current TD rate. I regret selling my Spark shares too early, given Spark's consistently higher than TD yield + the recently announced special dividends. Hope the SP will finally break $3 soon, before the vote, and that we get at least 5% return from next year onward, in the form of dividend.
Have to agree with above. The divvy is smaller than I expected, but at least it is only a final dividend. So next year we should expect to get close to double. I am of two minds about the share reduction/buyback. Maybe it was factored knto the SP. It will only serve to reduce the SP, by the same amount when the exercise is complete. Would have rather the company retained the capital and not relied upon borrowings or external liabilities.
I dont think the directors really care about the SP. I see it all the time. Instead of paying a decent dividend and have the SP follow the divvy, the make a divvy payment based on the current SP. They certainly dont want to have a fluctuating SP, dependant on the yoyoing profit.
So what should the SP reach. Unless there is a takeover, we will be lucky to go over $2.80 at the very most.
Still a good share for a long term hold with possibility of some future growth if they get their act together.
CZ, I think your are conflating the concepts of 'price' and 'value' in your nevertheless carefully thought out prose. Cancelling shares does not result in any of the business backing those shares being cancelled. So although you are correct in saying that the dollar cost average of your shares will go up as a result of the share cancellation, those existing business assets behind the share price will also have gone up in proportion.
To illustrate this point I will take the numbers you have assumed to reflect what will actually occur during the share cancellation. If your 150 shares were worth $2.61 each before the share cancellation, 23 shares are cancelled, and 40c per share is returned to the shareholder for each share held, then what will be the market price 'P' of each remaining share after the share cancellation?
(150 x $2.61) = 127P + (150 x $0.40) => (150 x $2.21) = 127P => P = $2.61
However, if you now ask a different question about what has happened to the underlying cash generating value of the Sky business 'V' during this exercise, on a per share basis, then a different calculation applies. This value V per share is now spread over less shares, in your case 127 not 150. So the underlying value of the shares you have left has gone up by a factor of 150/127 which equals +18.1%. IOW you haven't crystallised your loss, because the value of the business remains in the business spread over less shares, no matter what any share price machinations and capital returns are 'apparently' telling you.
If your argument is with the timing of the capital return then that is easily fixed. As soon as you receive your capital return, then immediately use that money to buy back into Sky . That way the amount of capital you have invested in Sky will not change. You may have to pay a higher price per share to return to the capital level you held before. But if that is the case you will also be getting more for your buck, as the underlying 'income generating value' of each of the shares you purchase will have gone up in proportion. It really will all even out in a fair way in the end, whichever path you take :-).
The fact that:
a/ You may have paid a lot more for your shares in the past then they are worth now AND
b/ The market is prepared to pay a big institution more than they paid for their shares today than when they bought at rock bottom.
is -in both cases- a reflection of how the market has priced the business over your respective holding periods. That is entirely disconnected and independent of the capital return process being proposed now.
I agree with your point above. But you would have to consider what would happen if Sky did not cancel the shares. The share price would go down by 40c (the amount of the capital return per share). By not telling you the exact number of shares to be cancelled now, it looks to me as though Sky are wanting to arrange it so that the share price does not drop after the cancellation. Doing that would see a market reflection of the underlying value of the Sky business not changing as a result of the capital return, which in my view is a true reflection of what is happening.
SNOOPY