SKT Sky Network Television Limited.

[mistaTea]

Wont the SP drop some more after the distribution goes Ex .. or will all the eager beavers promptly throw
it back into more of the same said shares on the loose ?

If the current market cap is a combination of PE multiple + cash in the bank...then the market cap will drop by the amount of capital returned regardless of whether they do it via buyback or tax free payment.

Under a buyback you will just end up owning a slghtly bigger piece of a smaller company (the total value of your shares will be unchanged).

Under a tax free distribution, if the market cap promptly fell by $55M after the distribution then your shares would be worth less but you would have cash in the hand. The 'new' value of your shares + the cash you have in hand would equal the previous total value of your shares. Then, if you feel Sky is the most attractive opportunity in front of you at the time you can always use the money to buy more shares and increase your ownership. Or you could spend it down the pub and piss it up against a wall. You get to decide.

if Sky try to distribute $55M by on market buyback it will take years. The tax free distribution is the most efficient way by far - and they can play smoke and mirrors if they want to by cancelling 1 in 10 shares during the process (so that the per share quoted stays higher). If they try a buyback by tender offer it will fail too - there just won't be much appetite for it given dividends are near.

And dividends will ultimately determine the final market cap. Sku currently only has a PE multiple of ~9 (projected FY22 earnings)...so it would not appear that the Balance Sheet is factoried into the valuation in a big way right now. If you subtract the cash pile from the valuation, then the current PE multiple is only about 5 or 6.

Plenty of room to go up if they can grow earings and restore market confidence so that they get a higher PE multiple.

[Snoopy]

We absolutely pay tax on dividends.

Mistatea, whether a shareholder pays tax on dividends or not depends on how much tax has been paid at source. If the company has paid tax at 28% (I checked the last interim result and SKT does this), then there will be an 'incremental tax deduction only' to make sure the individual shareholder pays tax at their marginal rate. (Although if the shareholder is another company there will be no such deduction). But the whole point of the imputation credit system is to make sure profits are not double taxed to the company and to the shareholder. So, in general, a shareholder will not be taxed more if a dividend is paid.

Saying shareholders 'pay tax on dividends' is, in my view, giving the wrong impression. The company has already paid tax on their profits, whether those profits are paid out as dividends or not. Declaring a dividend -or not- is irrelevant to the company tax position. You also have to bear in mind that a shareholder may indeed pay a higher (to make it more than than 28%) marginal tax top up rate on any dividend received. But as an individual shareholder, that shareholder's overall tax rate will in most cases be lower than the company tax rate (because shareholders are taxed at a much lower rate than 28% for the first tranche of their income). That means that as an individual, you will very likely pay a lower tax rate overall than a company. When the income tax calculation washes out at the end of the year, as an individual shareholder, you will very likely end up getting a virtual tax refund, despite any withholding tax 'tax grab' that hits your dividend before you receive it.

If the current market cap is a combination of PE multiple + cash in the bank....

The above comment has merit in the US situation where the company is taxed and the shareholders are taxed again on any dividend paid out. Dividends are double taxed in the US. This can lead to US companies retaining more capital on their balance sheets than desirable, because shareholders will be 'double taxed' if they pay it out. Such logic does not follow in New Zealand though, because tax free capital returns are possible as you have outlined yourself in previous posts Mistatea. Thus you can take it that any cash on the balance sheet is in general not surplus, but is part of an 'integral capital management structure' within the company. As an example, should that MediaWorks takeover have gone ahead, you can be sure that the 'surplus cash' on the balance sheet would have been deployed. By separating the cash out, as you seem want to do, you are actually counting the same cash asset twice. Your technique of double counting the cash assets within the company, is giving you a false sense of the value of the overall net assets that are actually there.

SNOOPY

[mistaTea]

Mistatea, whether a shareholder pays tax on dividends or not depends on how much tax has been paid at source. If the company has paid tax at 28% (I checked the last interim result and SKT does this), then there will be an 'incremental tax deduction only' to make sure the individual shareholder pays tax at their marginal rate. (Although if the shareholder is another company there will be no such deduction). But the whole point of the imputation credit system is to make sure profits are not double taxed to the company and to the shareholder. So, in general, a shareholder will not be taxed more if a dividend is paid.

Saying shareholders 'pay tax on dividends' is, in my view, giving the wrong impression. The company has already paid tax on their profits, whether those profits are paid out as dividends or not. Declaring a dividend -or not- is irrelevant to the company tax position. You also have to bear in mind that a shareholder may indeed pay a higher (to make it more than than 28%) marginal tax top up rate on any dividend received. But as an individual shareholder, that shareholder's overall tax rate will in most cases be lower than the company tax rate (because shareholders are taxed at a much lower rate than 28% for the first tranche of their income). That means that as an individual, you will very likely pay a lower tax rate overall than a company. When the income tax calculation washes out at the end of the year, as an individual shareholder, you will very likely end up getting a virtual tax refund, despite any withholding tax 'tax grab' that hits your dividend before you receive it.



The above comment has merit in the US situation where the company is taxed and the shareholders are taxed again on any dividend paid out. Dividends are double taxed in the US. This can lead to US companies retaining more capital on their balance sheets than desirable, because shareholders will be 'double taxed' if they pay it out. Such logic does not follow in New Zealand though, because tax free capital returns are possible as you have outlined yourself in previous posts Mistatea. Thus you can take it that any cash on the balance sheet is in general not surplus, but is part of an 'integral capital management structure' within the company. As an example, should that MediaWorks takeover have gone ahead, you can be sure that the 'surplus cash' on the balance sheet would have been deployed. By separating the cash out, as you seem want to do, you are actually counting the same cash asset twice. Your technique of double counting the cash assets within the company, is giving you a false sense of the value of the overall net assets that are actually there.

SNOOPY

Sure thing mate, I was thinking more about retail investors…and i agree that the percentage of tax they pay will be low due to the imputation credits.

Just pointing out that most people will pay some tax on dividends (even if it is a nominal amount).

The tax free distribution of the money from the asset sale guarantees that NOBODY pays any tax on that portion of capital returned.

Alternatively you could look at some kind of a special dividend and just accept that some shareholders will pay ‘some’ tax (but not a lot), and perhaps that is another option.

But I would still strongly prefer adopt the same model Tower did to ensure capital is returned in the most part efficient way.

Whoever route they go, I think a tax free distribution or special dividend will be better for shareholders than a buyback. Even though the price is attractive for a buyback, the volumes just aren’t there (as NZM have discovered recently).

[airedale]

The first half of the year has gone and 10 days since the last post on this usually lively topic. There are no signs yet of the new set top boxes being rolled out. Mista Tea, have you been given one to trial?

[snigmac]

I may have called Sky to query why there hasn't been a update on the substantive business since Feb/March. The Sky person didn't know of any releases that would be coming out until August's annoucement.

[mistaTea]

I may have called Sky to query why there hasn't been a update on the substantive business since Feb/March. The Sky person didn't know of any releases that would be coming out until August's annoucement.

Well, the gumchew who answered your call wouldn’t know about that kind of thing. And if he/she did…they aren’t exactly gonna say “yeah matey, we will do a big cap return announcement well before the FY results so just sit tight”.

But it would be foolish of Sky to wait until August 25 before shareholders get a meaningful update.

They are on thin ice as it is, and should realise that shareholders have now completely run out of patience.

If I was the Board and Management I would be looking to get cash into shareholders’ pockets as fast as I could.

Assuming they update the market soon, all we can hope is that the cap/return and dividend is meaningful. Still a risk that these guys want to keep the majority of the cash for future ‘investment opportunities’…but Sky having a lot of money burning a hole in their pocket is not a scenario that many are particularly enthused about now!

[snigmac]

We have a board/management that wanted to buy MW for 300m. I wouldn't put, not giving a update until sometime in August 2022, past them.

They weren't even aware that they havent updated the market on the substantive business in 3/4 months (e.g. how the rollout of the box - the future of the busiess and probably the single most important business activity for Sky). The box was supposed to have been rolled out and in customer hands by middle 2022. Even if things were bad with the rollout of the box, coms to say, there are issues and that these issues are being addressed would be better than nothing.

[mistaTea]

We have a board/management that wanted to buy MW for 300m. I wouldn't put, not giving a update until sometime in August 2022, past them.

They weren't even aware that they havented updated the market on the substantive business in 3/4 months (e.g. how the rollout of the box - the future of the busiess and probably the single most important business activity for Sky). The box was supoosed to have been rolled out and in customer hands by middle 2022. Even if things were bad with the rollout of the box, coms to say, there are issues and that these issues are being addressed would be better than nothing.

100% agreed.

[JohnnyTheHorse]

I was advised that the Sky Box launch is imminent. So I'd guess that'd mean within a month or two.

If we don't hear any update on the capital return this month the Board is either incompetent or in discussions with a party. It is critical they start feeding the market good news to help the shareprice.

At least the SP is starting to firm with someone clearly accumulating. But we need a news catalyst momentum to turn sentiment.

[Balance]

I am happy where the sp is.

The longer they delay the announcement, the better as the market volatility selldowns by the nervous nellies have been great!