Connect with us

Business

Chinese state-owned large warns of “disaster” of London Metallic Exchange reform options

Avatar

Published

on

Chinese state-owned giant warns of “disaster” of London Metal Exchange reform plans
C

hina’s monumental point out-owned metals trading company currently declared the London Metal Exchange’s sweeping changes including closing its famed open outcry trading ground would be a “disaster” and could push buying and selling out of the Uk to Shanghai.

The LME has provoked uproar by putting forward designs in January to shut its historic experience-to-facial area buying and selling ground recognised as the Ring and change the way the sector presents credit to prospects.

The Evening Common very last week documented the big opposition to the program from brokers and their consumers in the metallic getting and offering earth, which includes the most important trade affiliation for the mighty German metallic business which supplies its carmakers and other producers.

Today, it emerged that Minmetals – the greatest iron and metal trader in China and 1 of the biggest metals and minerals traders in the earth- has forcefully declared its opposition.

Minmetals’ anger at the program is especially telling offered that the LME is now owned by Hong Kong Exchanges and Clearing, whose major shareholder is the China-influenced Hong Kong governing administration.

Minmetals is especially opposed to ideas to shift to a method producing shoppers settle their theoretical margin losses on buying and selling just about every working day. Presently, the market retains losses and profits of clients’ trades and lets them to settle up as their deal arrives to an finish, which could be months ahead.

Minmetals United kingdom running director Liangmin Gu stated the adjust to the margin methodology would have a “huge” outcome, increasing  expenditures and producing the LME less competitive against its peers.

Talking at the Fastmarkets Copper Seminar, he explained: “From the Minmetals point of view, a modify [as the LME was proposing] would be a catastrophe for LME credit score provision.”

Praising the existing program, he said: “This provision has confirmed to be a aspect and exclusive priority in the world current market, and the outcome on LME individuals these kinds of as Minmetals, a remarkably responsible and credible fiscal hedger, would be huge.”

He reported the LME would get rid of its aggressive edge significantly to the Shanghai International Strength Exchange.

He added: “In point, our dealing expenditures have been accumulating since the LME was acquired by Hong Kong Exchanges & Clearing [in 2012], and immediately after a number of decades you can see the price enhance pretty very easily. Even so, as opposed with the change of margin methodology, the strike on us would be a great deal, substantially even larger -and unacceptable, I’m concerned.”

His words and phrases echoed these of the Verband Deutscher Metallhandler(VDM) association which reported the proposals were being so bad that they betrayed the market’s obvious lack of being familiar with of how its individual users work.

He additional that the LME’s open outcry trading, performed in a circular dealing place known as the Ring, was better than buying and selling electronically.

He said the ring provided a important dialogue with brokers acting on its behalf that a screen cannot deliver, alongside with greater liquidity and minimized volatility.

Sector individuals have till March 19 to react to the discussion paper, then the LME will take into consideration the responses in advance of deciding how to act.

LME chief government Matthew Chamberlain has mentioned he would like to democratise the current market, eradicating obstacles to external investors investing by driving the sector to electronic trades. He reported numerous respondents to the dialogue paper have been in favour of the plans.

Business

The 30 major companies doing £8 billion of share buybacks, and why they’re doing it

Avatar

Published

on

The 30 major companies doing £8 billion of share buybacks, and why they’re doing it
T

he City is calling it a Buyback Bonanza.

In the past fortnight, both Unilever and Diageo have announced they are buying back their shares to the tune of billions of pounds.

Research for the Evening Standard by share trading platform AJ Bell shows major UK companies have announced pland to buy back more than £8 billion of shares so far this year.

Of the 30 top names, some of the UK’s biggest companies feature, ranging from BP and Standard Chartered to Barclays and Balfour Beatty.

But what do buybacks mean, who does them and why?

When companies have built up a lot of spare cash from selling their products and services, they have three choices; invest it in something new that will hopefully generate more profits further down the line; keep it for a rainy day; or hand it over to shareholders.

If they choose the latter, they can either give it to the investors as cash – usually done as a dividend – or they can do it by spending the money on buying back the company’s shares from the investors.

What’s the point in that?

A share represents a slice of the value of a company. If you reduce the numbers of shares in issue, theoretically each share should be worth a bit more.

Also, it means that the big institutions get cash back for their shares when the company buys them. They can then invest that money elsewhere to get a higher return.

Generally, a company will tell a broker to go into the market and buy up a certain amount of stock, generally from the big City investors. UBS is doing the deed for Diageo.

Retail investors don’t generally have their stock bought back but they do benefit from the appreciation in the share price and a bigger share in the future dividends.

Why are so many buybacks happening now?

Through the Covid crisis, companies cautiously held onto as much cash as they could to get through the economic calamity brought on by the pandemic.

Many held back on paying dividends to investors, or reined in their spending on marketing, research and development or takeovers.

Now there seems to be an end in sight to the pandemic pain, those who can’t think of anything better to do with the cash are handing it back to shareholders.

Russ Mould at AJ Bell says super low interest rates are also driving the buyback trend: “Low interest rates mean firms are not gaining a decent return on any liquid assets,” he says.

Does the share price always rise when buybacks happen?

Not necessarily. BP has been doing them for years and it’s had little impact on the price, although you could argue that it’s impossible to say exactly what influences a share fluctuation. It’s possible BP stock would have fallen further if it had not been buying some of it back.

How should investors interpret a share buyback when considering a company?

Views are different. Most investors see them as a sign of confidence coming out of a recession, in that it shows management are less cautious about holding onto cash.

AJ Bell’s Mould says buybacks may also suggest management considers the shares are too cheap. After all, everyone in business wants to buy low and sell high. It is, then another vote of confidence in the company.

But it can also suggest management has run out of ideas about where to invest. That can be an indication either of unimaginative management or a boring, low growth industry. It could also mean management is risk averse, which could be a good thing.

E-commerce player The Hut Group this week issued new shares to expand its fast growing operations. That diluted existing shareholders but the stock rose because investors hoped the company would be worth more in the long run as a result of the deal.

Fast growing companies, particularly in tech, will often issue new shares to raise to cash because there is so much to go for in their markets to boost future profits. The slice of the pie may be thinner, but the pie itself will be larger.

Yes. Buybacks have come in for criticism because management teams have been accused of using them to juice up their bonuses.

Some bonus schemes are based on earnings per share (EPS) of the company. EPS is a measure where you take the total profit made by the company and divide it by the shares in issue. Naturally, if you reduce the number of shares that are out, hey presto, the EPS rises.

Some investors see buybacks as a form of financial engineering rather than improving the actual operations of the company and investing for solid, long term growth.

There is also evidence to suggest that, while management teams may think the shares are cheap, buybacks are generally done during bull markets when shares are actually at their highs.

More than £10 billion of share buyback plans were cancelled in 2020 when shares were probably at their cheapest. Buybacks done in, say, March last year would have been at rock bottom prices, producing a maximum EPS boost.

AJ Bell also warns that some companies are under so much pressure to give back cash to investors that they go into debt to fund the buyback. That could destabilise the business.

So, be wary of companies who buy back shares at any price, preferably setting a maximum they are prepared to pay and explaining why, and be cautious of those who do buybacks when their debts are high.

Diageo is quite highly indebted and its share price relatively fully valued, some analysts have warned. While the shares shot up more than 3% today, some of that could have been due to big profit upgrade it also announced rather than solely the buyback plan. It remains to be seen whether the buyback alone is a significant factor.

Mould says the final word should go to Warren Buffett, the so-called Sage of Omaha who, with his sidekick Charlie Munger, has been beating the markets for decades: “Charlie and I favour repurchases when two conditions are met: first, a company has ample funds to take care of the operational liquidity and needs of its business; second, its stock is selling at a material discount to the company’s intrinsic business value, conservatively calculated.”

Diageo

£1bn

Unilever

£2.6bn

BP

£360m

IMI

£200m

Quilter

£187m

D4t4

£300,000

Natwest

£1.13bn

Ferguson

£290m

Arix Bioscience

£25m

Raven Property

£7m

Somero Enterprises

£1m

IP Group

TBC

Balfour Beatty

£150m

Gamesys

TBC

Domino’s Pizza

£45m

CRH

£216m

Sage

£300m

Trans Siberian Gold

£1m

Rightmove

TBC

Griffin Mining

£7m

Spectris

£200m

Standard Chartered

£181m

Berkeley Group

£129m

Glanbia

£44m

CML Microsystems

£8m

Barclays

£700m

South32

£180m

Plus500

£18m

Zytronic

£10m

Contour Global

£23m

Continue Reading

Trending