Buy backs.

[Snowbadger]

How much difference does waiting for a buy back make as against selling on the open market? Is there a difference between selling generalist shares as against AIM listed?

As always thanks in advance,


SB

[Dod101]

How much difference does waiting for a buy back make as against selling on the open market? Is there a difference between selling generalist shares as against AIM listed?

As always thanks in advance,


SB

I am not at all sure what you are asking and whether you really understand how buybacks work. If a company decides on a share buyback, they appoint a broker to act for them and stand in the market to buy back some of the company's shares nearly always with a limit as to the price to be paid and always with a limit as to the number to be bought back. They will not approach you and offer to buy your shares; in fact as a shareholder you need not know anything about the activity. It has the effect of reducing the number of shares 'in issue', that is available to buy by the public.

If you decide to sell in the open market, you ask your broker to sell for you a certain number of sales. They will advise you of a price and you decide as to the amount to sell and at what price. Who buys does not matter to you but the shares will be bought by someone who wants to buy at more or less the price you want to sell. That transaction does not affect the number of shares in issue.

The third possibility is a tender offer. The company may decide to reduce the number of shares in issue but this time they offer existing shareholders the opportunity to sell some or all of their shares at a given price, That way it can be thought of as fairer to shareholders as they can then decide if they want to sell at that price. It fulfils the wants of the company (reduces the number of shares in issue) but is usually seen as fairer to shareholders as it allows them to sell at a given price. it is more expensive for the company though and does not seem to be used very often.

I think these broad principles apply to all shares whether generalist or AIM shares.

Dod

[UncleEbenezer]

To expand on what Dod said, VCTs are historically a little different. Given the tax treatment of VCTs, it's natural for them to trade at large discounts to NAV: a little short of -30% would be "par" for a healthy VCT when tax-adjusted. Advice was that if you wanted to sell non-urgently, to ask your broker to wait for a buyback which could get a better price.

Nowadays it's usual for them to trade at much narrower discounts to NAV - generally single-digit percentage - precisely because the managers run ongoing buy-backs. So that historic advice is unlikely to matter any more. If in doubt, ask your broker.

[Dod101]

To expand on what Dod said, VCTs are historically a little different. Given the tax treatment of VCTs, it's natural for them to trade at large discounts to NAV: a little short of -30% would be "par" for a healthy VCT when tax-adjusted. Advice was that if you wanted to sell non-urgently, to ask your broker to wait for a buyback which could get a better price.

Nowadays it's usual for them to trade at much narrower discounts to NAV - generally single-digit percentage - precisely because the managers run ongoing buy-backs. So that historic advice is unlikely to matter any more. If in doubt, ask your broker.

Oops. Did not realise that this is on the VCT Board. I know little or nothing about them so detail applying to these trusts from elsewhere may well be helpful for you.

Dod

[Kidman]

SB, I recall that quite a few VCTs give details of their market-makers in the general information section of their annual reports.

I would suggest that if that applies to any of your holdings then you give them a call and see what advice they can give.

[scotia]

My recent (in the past year) experience of selling a number of VCTs via Hargreaves Lansdown, is that it requires you to place a telephone order on VCTs in your HL account - there is no online dealing. On the telephone, HL will check to see if there is a market price, and if so they will carry out a sale at the stated market price - if you wish it. However some VCTs have no immediate market, and you may have to wait until the VCT has a buy back, at a date which might be a few months away (e.g. in my case for PEMB) . You may ask for the buy back to take place at the future date, and it normally occurs as requested. I have also had an occasion when there was a very low market price quoted on a small obscure VCT, with the chance that the VCT may arrange a buy back at a better price some time in the future. It was a small holding, so I accepted the low market price. In all of the transactions, HL explained what my choices were.

[Snowbadger]

"I am not at all sure what you are asking and whether you really understand how buybacks work."

to

"I know little or nothing about them so detail applying to these trusts from elsewhere may well be helpful for you."

Don't worry Dod we've all done it. I have found over the many fool years that the more robust reponders are the most helpful.

Regards,

SB

[Snowbadger]

Spoke to both Octopus and Jarvis XO, who as usual were very helpful. Octopus buybacks are at 5% discount to NAV. So on HL share sell price is 49p and NAV 51.7 or 49.12 with 5% buy back discount. You can trade online and put in a stop price. They will contact if lower offer or proceed if higher. They suggest a three month period because of the lack of liquidity of VCTs. They then await buy backs to sell. Octopus suggest that buy backs are almost done on a daily basis.

Obviously, 0.12 on the share price isn't great but the convenience of online trading is a big plus.

Thanks everyone for your contributions and I will let you know how it goes.

SB

[Snowbadger]

Just spoke to Octopus again about buybacks. They do them once a month. You need to apply at the beginning of the month for them to buy back towards the end of the month. I was too late applying yesterday so end of Oct now.

[londoninvestor]

Octopus buybacks are at 5% discount to NAV. So on HL share sell price is 49p and NAV 51.7 or 49.12 with 5% buy back discount. You can trade online and put in a stop price.

Obviously, 0.12 on the share price isn't great but the convenience of online trading is a big plus.

Also, my experience with Titan is that the sell price you see is pretty nominal: you most likely can't actually trade at it. With your example numbers, you really wanted to sell your shares right now without waiting for a buyback, you'd probably have to accept far less than the quoted 49p.

I don't remember the actual numbers, but when I sold my Titan I initially tried to sell outside the buyback, by putting in a sell limit order at slightly below the quoted sell price. Yet it wasn't traded until a buyback happened.

If you bring up the "Value - monthly" bar chart here - https://www.londonstockexchange.com/sto ... rade-recap - you can see that virtually nothing is traded in non-buyback months.

Not all VCTs are like this - for example, in my experience you can usually sell the Albions at the quoted price - so it seemed weird that something the size of Titan was so illiquid!

[UncleEbenezer]

Octopus buybacks are at 5% discount to NAV. So on HL share sell price is 49p and NAV 51.7 or 49.12 with 5% buy back discount. You can trade online and put in a stop price.

Obviously, 0.12 on the share price isn't great but the convenience of online trading is a big plus.

Also, my experience with Titan is that the sell price you see is pretty nominal: you most likely can't actually trade at it. With your example numbers, you really wanted to sell your shares right now without waiting for a buyback, you'd probably have to accept far less than the quoted 49p.

Titan was one of the VCTs I sold out of when I was raising money to buy a house in 2019.

Absolutely no difficulty getting the quoted price. The surprise then was illiquidity in trying to sell Baronsmead!

[Snowbadger]

The sale went through on Tuesday ahead of the expectations I was given of next month at 1p above the sale price given on HL. On holiday at the mo, so will post the results of my 7yr holding when I get chance.

SB

[londoninvestor]

Also, my experience with Titan is that the sell price you see is pretty nominal: you most likely can't actually trade at it. With your example numbers, you really wanted to sell your shares right now without waiting for a buyback, you'd probably have to accept far less than the quoted 49p.

Titan was one of the VCTs I sold out of when I was raising money to buy a house in 2019.

Absolutely no difficulty getting the quoted price. The surprise then was illiquidity in trying to sell Baronsmead!

Interesting - sounds like unlucky timing on my part then!

[yieldhog]

uncleebenezer mentioned Baronsmead (BVT) in his comment in this thread.

I bought some BVT several years ago and have stayed with them mainly for the high dividends, recognizing that high dividends were at the expense of errosion of capital value. In a small way,the shares were also filling a gap in my SIPP portfolio for venture funds/small cap/micro cap exposure.

At the last interim announcement, the dividend was cut from the year before from 3.0p to 1.75p. Assuming they actually stand by their stated aim of paying out about 7% of NAV each year, I calculate the final dividend should be around 2.1p (7% of 55 minus interim of 1.75p) bringing the year's dividend tp 3.85p which at today's indicative bid price of 51p gives a yield of 7.5%.

I sold half my shares last year through the company buy-back process i.e. leave a sell instruction with your broker and wait for the fund manager to make an offer to buy the shares at somewhere near the indicative market price.

I am now considering selling the remaining half of my holding and would be satisfied with a price within the indicative market spread. The only reason I hesitate is because in the past few years I believe BVT has paid dividends in excess of their stated intention of 7% of NAV. Weighing against this is the diminishing liquidity of BVT. Looking at the most recent list of holdings, I see that BVT still holds over 30% of it's portfolio in various small/ micro cap and other funds. If I sell then I will no longer have any exposure to these potentially high growth areas. I would hate to sell at this low point in the cycle and not have any exposure to the small/micro cap market. If I sell BVT and buy a small/microcap fund I should save on the fund fees by not having to pay both BVT and their small/micro cap fund managers fees. But it would be unlikely I would get much of a yield.

On balance I'm leaning towards the sell now route, mainly because of the increasing contraction of liquidity.
Any thoughts on this?

Y

[Snowbadger]

Hi Yieldhog,
I sold out of both Baronsmeades last year after holding for eight years. Back in the day they were top performers. However now the 5yr total return performance is -2% & -5%. Why would you want to hang on to that! I did a quick calc on my Octopus Aim holdings which were going great guns until the collapse of the AIM market. After 7yr including the 30% tax rebate I was up 15%. Not great but that was a tax free 15%.

Good luck,

SB