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LLOY - Share buyback 2019

lse:lloy

#322

All the RNS’s I have seen , issued by LLoyds and related to the Buyback, contain a link to a pdf file that lists all the transactions that constitute the day’s buyback. This document also shows the exchange on which the trades were performed.

An example is yesterday’s RNS which had such a link, [click here to see document]. The related document is 35 pages long.
The following Table is shown at the top of the document, and this Table is followed by a detailed list of all 2,413 individual trades.

Trading Venue Volume weighted average price (pence) Aggregated Volume
LSE 57.73 9,187,697
CHIX 57.70 751,823
BATE 57.73 2,663,062
TURQUOISE 57.70 996,012
* Rounded to two decimal places 57.73 13,598,594

This clearly shows that only 68% of the reported buyback trades where performed on the LSE.

LLoyds’ RNS’s are very detailed and provide all the required information.


#323

I do remember seeing a buyback with a similar structure before, now you’ve pasted it.

Yes, I see the .pdf now. Thanks for putting that straight.


#324

36.5% of the buyback funds have now been used to buyback 1.04bn shares at an average price of 61.58p. The purchases over the past couple of days have been a bit more varied. A lower proportion of the funds available have been used to date, compared with the previous buyback, and continuing at this rate will take us to mid-September to complete the buyback.



#325

You’d hope they would be more aggressive when the price was lower. Is there some sort of ratio/or rule involved stopping them being so do you know?

I know that sometimes there is a percentage variation beyond which they can’t buy, either in price or volumes, according to the rules of some buybacks. HSBA I seem to remember sometimes shut down buying early in the day due to such a restriction.

Looking at the graph you can see why people get frustrated with buybacks, although the second half of the period looks to have been handled better with greater volumes at a lower price apart from the sharp recent dip - which may be due to some rule kicking in as I said.


#326

HSBC indeed certainly run their buyback differently to Lloyds HSBC board wanted the share price to go back to the 600s and supported the share price if the market sold they turned up buying a gear or two… and on good days when the market was rising actually stop buying for hours on end

Anyway I piggy in the middle I want lloyds to buy back as many in the 50s as they can (value
For money) … but still want to see 80p plus yesterday :slight_smile:


#327


This shows the volume per trading day for the two buybacks and the related daily closing prices. I cannot really see any pattern with respect to volume vs price. The only thing that I see is a similarity in the sp profile.

I did analyse one day’s trading a short time ago and it appearred that the trades were relatively evenly spread over the whole day, with (in general) many very small trades. Up until recently they seem to have stuck with a steady daily block of money per day, changing this occassionally, but what triggers the change is unclear from the data. The 2018 buyback was much more erratic.

Looking at the price to volume behaviour is simple in hindsight, but at the time of the purchase it is unclear which way the sp will move subsequently. They have to make a judgement on what they think will happen, and last time they got it wrong since the SP continued to go south long after the buyback was completed.


#328

Hi Bowman, your doing a great job on the figures btw. I’m not tracking the numbers, so this is just a general enquiry if you happen to have the data, no worries if not.

Your quote above states a lower proportion, but the portion is twice as large.

My question is, if this years buyback was the same £1b like the last buyback (not £2b), would we be buying back greater volumes than last time?


#329

So far the 2019 buyback has bought 1.04bn shares after 72 trading days, compared with 707m shares in 2018, i.e. an increase of 47%.

In monetary terms the 2019 buyback has spent £638m compared with £459m in 2018, i.e. an increase of 39%.

The 2019 buyback available funds are £1.75bn compared with £1b in 2018, i.e. and increase of 75%. The 2018 buyback was completed in 113 trading days whereas, extrapolating the rate of expenditure in 2019, it would seem that the 2019 buyback might last about 143 trading days, i.e. about 27% longer.

If the rate of purchases in 2019 had been at the same rate as 2018, then the buyback would have lasted 75% longer, i.e. 198 trading days; longer than is currently projected. Conversely if the 2018 buyback had been performed at the same rate of purchases as in 2019, then the buyback would have been completed in 82 trading days; a quicker finish than actually achieved.

Conclusion: The 2019 buyback is buying in greater volumes compared with 2018.

Hope that is clear (and correct) and answers your question.


#330

First, just to be clear, I haven’t followed the LLOY buyback(s) in any detail at all, but have followed closely other buybacks. The HSBA buyback I referred to previously was aggressive on price drops (within limits laid down) and started the day after it was announced as part of quarterly results. From that moment on the share price rose and there did seem to be a distinct correlation.

Your excellent attempts at analysis underlines the major problem with buybacks generally, imo. Their value is very difficult to assess and even if it distinctly helps raise the share price, the only way for a shareholder to cash in is to sell shares.

I find this particularly galling when companies such as GLEN proudly announce in their forward statement “It is intended to raise our return of cash to shareholders next year by a full $1bn to $5.2 Bn from $4.2Bn … $1bn of which shall be in the form of a share buyback”.

In other words, no rise in dividend. This is just one example of many I could give over the years.

I saw an analysis once on U.S. buybacks and around 9/10 saw no discernible advantage for the shareholder although some board directors bonuses based on EPS rose tremendously. I think most institutional investors no longer allow boards to get away with that particular dodge.

Within the analysis the only real correlation between various buybacks and obvious success (I.e a higher share price) was when buybacks were in excess of 5% of market cap. Less than that and the results weren’t really apparent. Those that did fail quite obviously were around 2.5% of market cap.

I can’t remember the details of it very well now, this was some years ago. These are one off buybacks which were the first fashion, not buybacks that are renewed each year as seems to be the current fashion these days.

Indeed one company I follow, NYSE:AGCO, has bought back 50% of its market cap in recent years, "we believe the stock is undervalued while we wait for the next Ag cycle upswing "

Check out the yield after years of buybacks that could have been dividends.

A company raises money on the stock market in an IPO and puts that capital to work intending to pay shareholders a dividend to reward them risking their capital. That’s the basic deal, right?

So, if a company finds it has so much cash it can no longer use it to attain that reasonable return for its shareholders, what is wrong with a special dividend to give the cash back? (Holders in NG may have a word or two to say on that).

@Bill1703 (I hope he’s well, haven’t seen him on these boards for ages) has an accounting argument about buybacks and how they benefit the balance sheet and overall value of the company over time. I must say I don’t really have enough of a technical accounting mind to follow it, although I’m sure he’s right in what he says. He knows his stuff.

When it comes down to it buybacks seem to be right on occasion for some companies, but they must have the flexibility to be aggressive when the price is lower and ease off at higher valuations. This is harder to achieve than it sounds because a third party has to given autonomy to conduct the buyback. BUT, surely someone has got these rules right at some point and they have been executed excellently (I.e raised the share price) and that bank or broker should have earned a name for itself, surely?

Afterall, its easy money - it is clearly all done by software which only has to be programmed once. Paying for someone to oversee that software is another down side to buybacks, but why not call in the acknowledged experts everytime?

Also, in the scenario where a buyback is apparently raising the share price as it was with the first HSBA one I mentioned (around 2015 possibly?) there comes a point as a shareholder where you have to bail out (sell shares) to cash in … as we followed it on the HSBA board (I’m sure @regardless remembers this) all the discussion was about "will the s.p. fall off a cliff once the buyback steroids disappear? Do I sell now or do you think they’ll announce a buyback extension at the next quarterly review?

Personally, I’d be happy to go back to the days when it was deemed illegal for a company to buy its own shares unless it had announced its intention to take the company entirely off the market.

I still have the same questions I asked the very first time I heard a buyback being announced:

If the company has run out of ideas so much that it can no longer employ my money to make a reasonable return why doesn’t it
a) just give me it back?
b) elect a new board with some fresh ideas?
c) isn’t announcing a buyback an admission that the company has now maximised its returns and size in its current business and isn’t that in itself going to depress the share price multiple the market currently allocates it?

I’ve still never really had a satisfactory answer (that I fully understand). What kind of company sees the best use of the capital on hand is to buy its own stock? Only if the board believe it is hugely undervalued should that ever be the case. Yet it it isn’t uncommon to see companies with huge debt buying back shares these days when surely paying down expensive debt would strengthen the balance sheet that much more and give better stability for future earnings?

Ok, rant over. Nice graphs, @Bowman. Good work.


#331

You really have answered wonderfully thank you, great bookwork Bowman:)

Good rant. Why not email AHO’s office Eadwig, I have done so in the past and they do respond to enquiries. I think it more than fair to question what’s going on with all these bonuses not being paid in cash and diluting the sp, only for the expensive merry go round of the buy backs to complete the circle.

I’m not looking at much Lloyd’s detail these days, but from memory the initial £1b buyback equated to no great reduction of shares in issue due to that years staff bonuses produced.

So if 2020 doesn’t have a buyback, Lloyd’s spent buyback cash similar to 2018. Circa £1b each year.

And after spending £3bn in 3 years, there will be a similar amount of shares in issue.

It stinks!

OK there was a reduction in shares in 2018, but nothing to warrant any form of excitement.


#332

I think I would agree with the general tone of @Eadwig’s comments about low level buybacks.

There has been some discussion of the issue of bonus shares. I trawled back through old Annual Reports and found that back in 2008 (pre-financial crisis) the bonus shares accounted for about 0.7% of the shares in issue. The highest bonus payment I have found since then was in 2012 when the bonus shares accounted for 1.65%. However if I add all the bonus shares issued since the end of 2009 I get 3,394m shares. The two buybacks have so far bought back 2,613m shares, and the remaining funds from the 2019 buyback are sufficient to buy a further 1,805m shares, making 4,418m shares.

An additional 1,273m shares were issued between 2011 and 2018 related to coupons on certain capital securities and a share redesignation. The number of shares in issue after the 2019 buyback is completed will return the number of shares in issue to just under 69bn shares, a level last seen in 2012. So it seems that the buyback is removing the dilution created by the bonus share issue and the additional share issuance.

The buyback will be liked by HMG since stamp duty will be payable on the shares bought, since they will receive £10.9m.

If the bonus shares were to be bought in the open market and then given to the bonus share recipients then the capital to buy these shares would be removed from the funds available to pay dividends, which would consequently have to be lower. Paying bonuses in cash rather than shares would have had the same effect. This means that shareholders have received a higher return (in dividend terms) than they would have done if a different approach had been used.


#333

This is one of the reasons, it is argued, that there has been less calls for regulation or limiting of buybacks over the years … although it doesn’t explain why they are so popular in USA also where there is no stamp duty.


#334

So in all the Buy Back has been successful and bought down the number of shares in issue to 2012 with levels so far and add buyback will be liked by HMG since stamp duty will be payable on the shares bought, and since HMG has received around 11 Million pound in Taxes in 12 months

Lloyds Banking Group just does not stop giving to the country’s coffers IMHO

Games / Swamp_Cat / Bowman / Eadwig thanks for keeping this thread interesting :slight_smile:

THANK YOU


#335

Not sure , but another post of mine was ticked up today by none other than @NewBill1703 - who I assume must be the old @Bill1703 referred to above - helluva coincidence if not! If he sees this and has anything to add we’ll may get another perspective on buybacks if he has the time.


#336

Hi Eadwig - yes indeed, it is I, hope you are well. Only on these boards periodically these days, for a variety of reasons, but I do like to pop in to see what is going on.

I have written extensively on buybacks on these pages over the years, for those who care to go searching, but mostly saying the same thing. It is futile to judge buybacks as short term share price support mechanisms, they are not designed as such, and if they have that effect it is more a matter of luck.

But for companies with the right characteristics, on debt levels, cash flow profile, P/E rating, etc, they can often (not necessarily always) prove a low risk, value accretive option. Basically by replacing expensive equity with cheaper debt (often much cheaper, on a post tax basis) - as long as this latter equation holds.

But some people will never see it that way - whether they can’t or they won’t is for them to say!


#337

Hi All, Well it seems to me that that Lloyds buyback is doing what is said on the tin – reducing the numbers of shares outstanding. For those that thought it was going to boost the share price, they should note that this was never written on the tin and the expectation that this might happen is likely a US stock related phenomena. Here there are FCA rules which govern buybacks meaning that the company can never exceed a certain volume and the company would never want to exhibit any buyback behaviour that might be commercially exploitable due to some observable buying characteristic.

I have seen many UK buybacks come and go, and the HSBA one that took them from just over 400 to close to 700 has been the only one that I have seen that has successfully moved the share price. There may have been others but if so then I am unaware of them.

Given the choice between a buyback and a special dividend I would take the dividend every time.

ATB

Pref


#338

82 days of the buyback gone and 40% of the funds used. The pace of daily buying has become rather erratic of late, and the volumes are dropping. Maybe the Brokers are waiting for the sp to drop significantly before buying in large volumes again!

There was a TVA RNS released today that showed the number of shares in issue has dropped since the last such RNS by 192.7m shares, however 310.7m shares have been bought back during the same period. These numbers appear to indicate that 118.1m new shares have been issued.

My estimate of the buyback end date takes us now to mid-October 2019, and my estimate of the final number of shares is 69.05bn, a level last seen in March 2012. At this level I calculate that the dividend per share would be 3.3% higher if the amount available to pay the dividend were to remain the same, which would be a positive outcome for the buyback.


#339

Bowman thanks so much for this it’s really helpful for me to understand in depth

Looking good we going to buying back shares right up to and beyond PPI expiry date and maybe upto 31s October

ALL is looking good for me to buy a few more cheap black horse shares myself soon

Everyone’s a winner


#340

So the buy back is going to add additional 3% to my Lloyds dividend… lovely

A little fag packet work out on my holding today that’s additional £500 added to my dividend going forward

Who needs to work when you’re holdings Lloyds Banking Group shares

Living the dream folk’s living the dream


#341

That is only an estimate based on the number of shares that could be bought back (using today’s sp) by the end of the buyback campaign. It does ignore any new shares that are issued between now and then to cover bonuses etc., which is an unknown number.