Bill1703
21 Feb 2017
Re: Buybacks vs Special Dividends Yes, Eadwig, there is highly unlikely to be a resolution, any time soon. You either "get" buy-backs or you don't, IMHO..."Bill, common practice in the states now (or maybe not any more since rates started rising again) to borrow money to buyback shares. How dubious a practice is that? (rhetorical)."In certain circumstances, it's fine (for me) - if your shares are sufficiently cheap and your balance sheet 'sub-optimal' (ie. leverage below target levels). But I don't disagree, it's been taken to extremes and way beyond in the US... much less so over here. And it also depends whether you 'buy' the efficient balance sheet theory (in short, lower WACC = higher EVA (economic value added) = higher equity value)...."... If you really can't find a way to invest 'spare' cash to generate profits for shareholders, then pay down debt and strengthen the balance sheet. If you've got no debt, then give them their cash back via a special dividend" ... and from what you say, you clearly don't! Fair enough... it varies a lot of course, but it's actually quite hard for some companies (particularly larger caps) to consistently find sufficient investment uses at reasonable returns. And mark the wise words of Omaha Man... two-thirds of acquisitions prove to be failures (in terms of creating value), and shareholders are WELL aware of this. Some of the best companies successfully combine buy-backs (and/or specials) with investment for growth. If companies CAN find sufficient opportunity to invest their capital for superior returns, then you are right - they shouldn't buy their shares back. And don't forget, special dividends and buy-backs are near identical in terms of the impact on corporate finances. Some shareholders (myself included) prefer buy-backs for tax reasons, but others will have an alternative preference..."and start thinking seriously about resigning and letting someone with some new ideas have a go at generating the sorts of returns seen in the more successful parts of the sector."Yes, perhaps, that is often a valid suggestion - more often than it happens, anyway.FWIW I think the aversion to buy-backs is more valid among smaller caps, and in "growth" sectors of the market. Of all the companies I can think of where buy-backs have proved successful, they are typically in neither camp, for by far the most part...
Bill1703
21 Feb 2017
Re: on another note.... "If in the event that Next were to become financially strained, if sales keep falling, then the assets, the operating leases and the yawning current liabilities will become an issue."Yes, Games, operating lease exposure is definitely one concern - Next has very high interest cover, and fixed charge cover (ie. including leases) is still very comfortable. But a continuing negative spiral or sales and profit declines would at least prompt questions... "Only when it's too late do people realise the value of having some assets to fall back on to raise finance."Yes, I hear what you say - when I say I am not convinced at the real value of asset-backing, I'm equally not convinced it's NOT pretty useful. My concern is, you sell assets, you're selling EBITDA, so it's hard to effect any meaningful change in actual leverage, even with significant sales. You are often just selling the future upside from any recovery in trading. Unless you are lucky enough to sell unproductive assets at good prices - in practice, this is rare."Games -- I don't think I have enough answers yet to consider lashing my wonga on this one."Yes, me too. It probably is cheap - but then, so are most of its retail peers, and some of them are cheaper. And I am not clear on Next's real place in the rapidly evolving retail landscape (though I am not an expert and certainly no shopper!)
Omaha man
21 Feb 2017
Re: Buybacks vs Special Dividends I've avoided getting involved in this discussion as it's mostly treading well worn paths, but I must take issue with defining buy-backs as an admission of failure. The majority of corporate disasters are the result of companies which have reached their maximum potential in their industry segment refusing to accept this andrather than buying back shares or raising the dividend (I don't really care which) seeking desperately to maintain growth.Hence the American acquisition which has destroyed value for so many companies; the diversification into 'associated' areas about which it becomes clear they know little; the purchase of a competitor at a grossly inflated price. There are so many ways to destroy shareholder value and so many companies have followed them rather than accept that they have reached a logical limit and accepted that growth will be slow thereafter.
Akis1999
21 Feb 2017
Re: Buy backs gamesinvestor ,"And did you read this article by Richard Beddard just after the Brexit vote? :----"I am not going to call this guy names, I am biting my tongue, so let's concentrate on the article.Half or more of the article is about Brexit. The other half shows a confirmation bias. The facts are there, the signs are there, but they are interpreted in the complete opposite way.Just like his take on the EU and Brexit it would seem... 
Eadwig
20 Feb 2017
Re: Buybacks vs Special Dividends Can't ... get .... involved .... in ... another .... buyback .... discussion ....Except to say its good to see a lot of the views I've been airing over the last few years being repeated.Bill, common practice in the states now (or maybe not any more since rates started rising again) to borrow money to buyback shares. How dubious a practice is that? (rhetorical).Buybacks stink, on the whole. Those few that work very often should have the FCA all over them, and who's to say that wont happen at some future point leading to other past buybacks in other companies coming under the retrospective microscope?If you really can't find a way to invest 'spare' cash to generate profits for shareholders, then pay down debt and strengthen the balance sheet. If you've got no debt, then give them their cash back via a special dividend - and start thinking seriously about resigning and letting someone with some new ideas have a go at generating the sorts of returns seen in the more successful parts of the sector.Apart from very special circumstances where market sentiment is so against the company it is seriously undervaluing the company, and doing so incorrectly in the view of the board, then buybacks are basically an admission of failure. Period.
