SKT Sky Network Television Limited.

[RTM]

Mr T....very slow to the Forum this morning....exhausted ?

[winner69]

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 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 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, 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. 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 be 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 true.

SNOOPY

Hey Snoops - less shares means higher EPS .... means higher share price id PE ratio maintained .... cool eh

But in many instances the PE ratio falls as a result ..... not good for share price (as it doesn't go up as its meant to because of higher PE)

Wonder what'll happen in this case ...... curious zebra might be even more disappointed

But in many in

[mistaTea]

Mr T....very slow to the Forum this morning....exhausted ?

Sorry mate, too busy daydreaming about dividends.

[RTM]

Sorry mate, too busy daydreaming about dividends.

Thought you may have had a big night.

[Balance]

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.

Snoopy has given an excellent reply to your post.

Critical point imo to note is that it is irrelevant what one paid (cost) for shares in a company once the investment is made - what is relevant is where one believes the sp is going to go.

If you want to see how capital return via share cancellation can work favorably to enhance shareholders' returns, have a look at AIA and PGW (shares I own).

Both have powered on and delivered excellent returns to shareholders post their share cancellations/capital returns.

[bottomfeeder]

Snoopy has given an excellent reply to your post.

Critical point imo to note is that it is irrelevant what one paid (cost) for shares in a company once the investment is made - what is relevant is where one believes the sp is going to go.

If you want to see how capital return via share cancellation can work favorably to enhance shareholders' returns, have a look at AIA and PGW (shares I own).

Both have powered on and delivered excellent returns to shareholders post their share cancellations/capital returns.

The SP will power on only if they can start to make more profit, and pay more dividends on the lower NTA after the capital return.

[mikelee]

....and I certainly haven't seen much upward movement of the SP since the 10:1 share consolidation. Or was that different from share cancellation?

[Baa_Baa]

....and I certainly haven't seen much upward movement of the SP since the 10:1 share consolidation. Or was that different from share cancellation?

Maybe you're not looking in the right place? Or perhaps 25% capital appreciation in share price, in less than one year, since consolidation isn't "much', or enough, for you. It actually got up to 42% gain but has come off a bit. Yes, it's different from share cancellation. There's plenty of detailed explanation on the cancellation if you care to read it here, some of our best and brightest investors have spelt it out in detail.

[mistaTea]

AB’s lost to Argentina. First time to lose to them on NZ soil.

Maybe that’s why the SKT SP pulled back yesterday - the market knows that the All Blacks are worthless now!

[curious zebra]

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

Thanks, Snoopy for your detailed reply clarifying the difference between price and value - I very much appreciate the time and effort you put into explaining. However, I’m still left wondering how Sky’s Board and/or management will decide what price they put on each share when they come to cancel those shares? I can’t see any way to establish a price without reference to the market price at the time. Can you suggest any alternative pricing mechanism they might use, especially one reflecting a perceived value?