16-10-2011, 12:09 AM
(15-10-2011, 01:51 AM)Nick Wrote: [ -> ]Hi Qiaofeng,
I have been puzzled by the share buy backs as well since it isn't typical of a business trust to return capital to unit-holders. In your post, you mentioned that share buy backs can increase A ie the market capitalization. But how does that work out ? Wouldn't share buy back reduce the market capitalization of the Company (assuming rationale market behaviour) since the company profit generating ability remains unchanged but its cash position would have declined slightly thereby making it less valuable than before ? Would appreciate your view in this matter.
(Not Vested)
Share buyback generally does reduce market cap. But thinking again, depending on the price u pay, maybe it may hv an effect of increasing market cap.
Part of Mgt Fee formula = Market Cap (A) - Cash (B) --> (keeping the rest out since it is nt currently active)
(1) B is fixed and the way to increase fees is to reduce B. So, naturally, they want to use it.
(2) Market has punished them (big NAV discount) for their some of their major accqusition failures (Arqiva especially) and i suspect they may hv learnt a lesson there. So the way to look prudent and reduce B, is to buy back the shares.
(3) Thereotically, a share buyback keeps management fee constant because A and B reduces at the same time.
(4) But the sharper a NAV discount u do the buyback n cancel the shares, the faster rate the NAV increases. Ie. Rate of NAV increase is directly proportional to NAV discount of share buyback/cancel.
(5) In future, if the market turns and the share price discount to NAV trends back to the [/u], we shd expect a higher 'effective market cap minus the cash'.
hi qiaofeng,
thanks for your views, u hv some good ones. I am a little confused about your posting below:
Performance Fee
The only way they can bring the share price up is by share purchase.
In effect, it is a value trap.
what do u mean by a value trap? I dont expect MIIF to be a growth company. It is supposed to be more like a dividend play.
Their record of accqusition/divestment is indeed weak in my opinion as well. Some shareholder questioned that in 1 of the AGM 2yrs back and the lead ID acknowledged it but also tried to let everyone see that Mgt did make some good $ with other divestments back in 2006/7. To be frank, when Arqiva was bought some time before the credit crisis, at that time, everyone (including myself) thought it was an excellent biz. It is, just that the financing part wasnt. Before 2008, MOST of us lived in a world where credit was sexy. Of course, when the tide came down, all those who believed credit was sexy, paid the price.
(vested)