Schroders PLC (SDR)

[Dod101]

There seems to have been no particular pressure on Schroders to do this although I think the LSE in general does not like dual share structures. It has though served income seekers well given the big discount on the Non Voting shares.

The additional 'bonus' shares being proposed for the voting shareholders will reduce the individual value of these shares, I think by around 15% and might allow a modest uplift in the value of the Non Voting shares, hence, I suppose the dilution of the Schroder family shareholding. Is there some fiendish thought behind this that I am missing? Maybe to allow for share buybacks?

Otherwise I can see no real benefit for the Company itself. We need a Gengulphus to help the thought process.

Dod

[BullDog]

It seems the market likes it. Tempted to cash in a juicy profit.

[simoan]

It seems the market likes it. Tempted to cash in a juicy profit.

Yes, SDRC up 30% currently. An unexpected capital gain for those of us that invest on a total return basis.

All the best, Si

[Dod101]

That is presumably the Non Voting shares that are up. Predictably the voting shares are modestly down. Talk of 'cashing in'? Short termism or what?

As a holder of the Non Voting shares, I am doing nothing.

Dod

[simoan]

That is presumably the Non Voting shares that are up. Predictably the voting shares are modestly down. Talk of 'cashing in'? Short termism or what?

As a holder of the Non Voting shares, I am doing nothing.

Dod

Why is it short-termism? Thought you’d be annoyed your dividend yield has just taken a hit The fact is, the valuation of SDRC has just changed and it now looks significantly more expensive. Can currently sell at 2480p if you’re interested.

[Dod101]

That is presumably the Non Voting shares that are up. Predictably the voting shares are modestly down. Talk of 'cashing in'? Short termism or what?

As a holder of the Non Voting shares, I am doing nothing.

Dod

Why is it short-termism? Thought you’d be annoyed your dividend yield has just taken a hit The fact is, the valuation of SDRC has just changed and it now looks significantly more expensive. Can currently sell at 2480p if you’re interested.

I am not in the least concerned that the yield has now dropped. The cash value of the dividend is the same. Were I a potential buyer it would be different probably. It is short termism because I like Schroders as an investment. It is well run and the uplift in the value of the currently Non Voting shares is likely to be permanent. They are historically quite cheap at the moment.

The value of the Company as a whole has not changed and the enfranchisement of the Non Voting shares will transfer some value from the voting to the non voting shares on a perm anent basis. I will at least wait until it all settles down, and most likely will keep my shares. I am not a trader. It is nice to get an uplift in the price though.

Dod

[monabri]

That is presumably the Non Voting shares that are up. Predictably the voting shares are modestly down. Talk of 'cashing in'? Short termism or what?

As a holder of the Non Voting shares, I am doing nothing.

Dod

Why is it short-termism? Thought you’d be annoyed your dividend yield has just taken a hit The fact is, the valuation of SDRC has just changed and it now looks significantly more expensive. Can currently sell at 2480p if you’re interested.

Why should "dividend yield" be of concern (" annoyed" ? )to an existing holder? Unless the dividend quanta changes I would have thought it irrelevant. A lower yield might " put off " new buyers.

Edit: Dod has said similar.

[Dod101]

It seems the market likes it. Tempted to cash in a juicy profit.

Of course 'the market' likes it, if, as I suppose you are, you are referring to the Non Voting shares. It would be completely illogical for it not to. They will not of course rise to the value of the voting shares but the two classes will settle somewhere in between in due course.

Dod

[simoan]

That is presumably the Non Voting shares that are up. Predictably the voting shares are modestly down. Talk of 'cashing in'? Short termism or what?

As a holder of the Non Voting shares, I am doing nothing.

Dod

Why is it short-termism? Thought you’d be annoyed your dividend yield has just taken a hit The fact is, the valuation of SDRC has just changed and it now looks significantly more expensive. Can currently sell at 2480p if you’re interested.

Why should "dividend yield" be of concern (" annoyed" ? )to an existing holder? Unless the dividend quanta changes I would have thought it irrelevant. A lower yield might " put off " new buyers.

Edit: Dod has said similar.

So you didn't notice there is dilution involved?

Under the enfranchisement, each Non-voting Share will be converted into one Ordinary Share and all such re-designated shares will have the same rights as the existing Ordinary Shares, including full voting rights. Under the proposed terms of the enfranchisement, holders of Ordinary Shares will receive a bonus issue of three additional Ordinary Shares for every 17 Ordinary Shares held on a record date to be determined in order to compensate them for the dilution of their voting rights.

All things being equal this means the dividend payment will be spread across more shares in the new entity.

[monabri]

That is presumably the Non Voting shares that are up. Predictably the voting shares are modestly down. Talk of 'cashing in'? Short termism or what?

As a holder of the Non Voting shares, I am doing nothing.

Dod

Why is it short-termism? Thought you’d be annoyed your dividend yield has just taken a hit The fact is, the valuation of SDRC has just changed and it now looks significantly more expensive. Can currently sell at 2480p if you’re interested.

Why should "dividend yield" be of concern (" annoyed" ? )to an existing holder? Unless the dividend quanta changes I would have thought it irrelevant. A lower yield might " put off " new buyers.

Edit: Dod has said similar.

So you didn't notice there is dilution involved?

Under the enfranchisement, each Non-voting Share will be converted into one Ordinary Share and all such re-designated shares will have the same rights as the existing Ordinary Shares, including full voting rights. Under the proposed terms of the enfranchisement, holders of Ordinary Shares will receive a bonus issue of three additional Ordinary Shares for every 17 Ordinary Shares held on a record date to be determined in order to compensate them for the dilution of their voting rights.

All things being equal this means the dividend payment will be spread across more shares in the new entity.

More shares but not necessarily a dividend reduction. Goes back to the reason for the enfranchisement...the board must see advantages and hopefully this will translate into business improvement.

(It'd be interesting to see if Nick Train comments on this).

[Dod101]

That is presumably the Non Voting shares that are up. Predictably the voting shares are modestly down. Talk of 'cashing in'? Short termism or what?

As a holder of the Non Voting shares, I am doing nothing.

Dod

Why is it short-termism? Thought you’d be annoyed your dividend yield has just taken a hit The fact is, the valuation of SDRC has just changed and it now looks significantly more expensive. Can currently sell at 2480p if you’re interested.

Why should "dividend yield" be of concern (" annoyed" ? )to an existing holder? Unless the dividend quanta changes I would have thought it irrelevant. A lower yield might " put off " new buyers.

Edit: Dod has said similar.

So you didn't notice there is dilution involved?

Under the enfranchisement, each Non-voting Share will be converted into one Ordinary Share and all such re-designated shares will have the same rights as the existing Ordinary Shares, including full voting rights. Under the proposed terms of the enfranchisement, holders of Ordinary Shares will receive a bonus issue of three additional Ordinary Shares for every 17 Ordinary Shares held on a record date to be determined in order to compensate them for the dilution of their voting rights.

All things being equal this means the dividend payment will be spread across more shares in the new entity.

That is true and it seem to represent a dilution of around 10/12% so not insignificant, and effectively transferring some of the rights to dividends from the current non voting shares to the current voting shares. In exchange of course the holders of the current non voting shares are getting a good capital uplift. Quite a lot of things to think about.

Actually picking up on monabri's comment, I cannot see that this will have any effect of the business as such. The only advantage I can see is that it will give scope for share buybacks which will be difficult at the moment with the very large holding by the Schroder family, not unlike the issue with Caledonia Investments. That would reduce the effect of the dilution proposed. If fact that would seem to be a quite likely scenario.

Dod

[KnightOfSpring]

I know SDRC and SDR prices are moving around a bit but is it correct that the discount SDRC is now at is broadly "fair" given the extra shares the voting shares will receive? ie the market thinks that this is more or less a done deal. I think it is, but would appreciate a second opinion. Just before posting this, I see the discount has widened to about 19.8%. SDR holders will get an extra 17.6% shares, so this discount doesn't seem unusual given lack of complete certainty, timing etc.

[simoan]

More shares but not necessarily a dividend reduction. Goes back to the reason for the enfranchisement...the board must see advantages and hopefully this will translate into business improvement.

(It'd be interesting to see if Nick Train comments on this).

How on earth does this change the business? It changes nothing business wise; it's just behind the scenes financial engineering, nothing more. We'll have to see what the dilution means for the dividend of the new listed entity but it's very difficult to view it as a positive, and the fact remains that most of the institutions involved will not care about the dividend in the same way most people here might.

All the best, Si

[Dod101]

Decided to bank a very handsome profit and move on. While some are counting their shares sitting in the winter rain, I will be taking breakfast looking out over the Indian Ocean at my favourite breakfast place just north of Fremantle. Flights courtesy of SDRC profits.

Looking to reinvest the remainder of the SDRC cash into something with a decent enough yield. LGEN, maybe. Doing the sums, I might even be able to get a higher income and the free flights from the proceeds of SDRC.

Doris, eat your heart out sitting in the rain counting your shares

You may be right, who knows? I could be tempted to take the profit, ie the uplift but I would certainly keep the bulk. Most likely I will just do nothing. Depending on the Covid situation, I will not be sitting counting my shares in the winter rain. I will most likely be in Malaysia or Indo China and follow that with Perth WA, and still have my Schroder shares.

Dod

[KnightOfSpring]

I assume if I had made an error someone would have pointed it out by now. Current prices seem about fair given the dilution for SDRC holders. It was my 3rd or 4th largest share holding at just over 9% of my porftfolio prior to the bid and would have still been 3rd, but close to the Diageo and Unilever holdings. Had taken advantage of the discount having shot up to over 40% (a day or so before it last went ex div was the most attractive time to buy). It was part of an evolving strategy I have to take core holdings (in hopefully good safe(ish) companies) up to levels I would generally be uncomfortable with, if I felt the shares were priced particularly attractively short term. Perhaps I was just lucky with this and it might prove to be a foolish strategy. Perhaps I will do the same with Burberry and take an absolute pasting!

Schroders does seem a quality outfit and they always come across very well at presentations, but I don't want anywhere near as big a holding now that the discount angle has gone. Could see it dropping back to about 4% of my porttfolio and have already sold over 20% of my SDRC holding.

[Dod101]

I assume if I had made an error someone would have pointed it out by now. Current prices seem about fair given the dilution for SDRC holders. It was my 3rd or 4th largest share holding at just over 9% of my porftfolio prior to the bid and would have still been 3rd, but close to the Diageo and Unilever holdings. Had taken advantage of the discount having shot up to over 40% (a day or so before it last went ex div was the most attractive time to buy). It was part of an evolving strategy I have to take core holdings (in hopefully good safe(ish) companies) up to levels I would generally be uncomfortable with, if I felt the shares were priced particularly attractively short term. Perhaps I was just lucky with this and it might prove to be a foolish strategy. Perhaps I will do the same with Burberry and take an absolute pasting!

Schroders does seem a quality outfit and they always come across very well at presentations, but I don't want anywhere near as big a holding now that the discount angle has gone. Could see it dropping back to about 4% of my porttfolio and have already sold over 20% of my SDRC holding.

It is not of course a 'bid' in any sense, simply an enfranchisement of the non voting shares. I am interested to know why because it does nothing except reduce the overall voting rights of the Schroder family and as I said above, that gives headroom for share buybacks. Well, of course it increases the value of the non voting shares but that is most likely in the long run to be at the expense of the voting shares. Nothing has changed in the value of the business, certainly not as a result of these financial manoeuvrings.

Dod

[simoan]

I know SDRC and SDR prices are moving around a bit but is it correct that the discount SDRC is now at is broadly "fair" given the extra shares the voting shares will receive? ie the market thinks that this is more or less a done deal. I think it is, but would appreciate a second opinion. Just before posting this, I see the discount has widened to about 19.8%. SDR holders will get an extra 17.6% shares, so this discount doesn't seem unusual given lack of complete certainty, timing etc.

Seeing as there are currently 282,500,000 shares of each class in issue (total of 565,000,000) the overall dilution across both classes will be half the 17.6% dilution caused by the new voting shares, so around 8.8%. As I said before, all things being equal you would expect the dividend to be reduced by this amount unless a larger dividend payment is made to allow for this dilution.

All the best, Si

[KnightOfSpring]

I know SDRC and SDR prices are moving around a bit but is it correct that the discount SDRC is now at is broadly "fair" given the extra shares the voting shares will receive? ie the market thinks that this is more or less a done deal. I think it is, but would appreciate a second opinion. Just before posting this, I see the discount has widened to about 19.8%. SDR holders will get an extra 17.6% shares, so this discount doesn't seem unusual given lack of complete certainty, timing etc.

Seeing as there are currently 282,500,000 shares of each class in issue (total of 565,000,000) the overall dilution across both classes will be half the 17.6% dilution caused by the new voting shares, so around 8.8%. As I said before, all things being equal you would expect the dividend to be reduced by this amount unless a larger dividend payment is made to allow for this dilution.

All the best, Si

Ok thanks. So I wasn't right. I have sold about 50% of my holding at discounts between 15-16% to the voting shares. Probably would have done so for this on the lower figure anyway, as there always is some uncertainty on these things and the large discount was the main reason why I was so enthusiastic. Very nice profit on the more recent purchases, but I did envision decades of trading in this - generally buying above a 35% discount and selling below a 25% discount (whilst keep a core basic holding).

[Dod101]

I know SDRC and SDR prices are moving around a bit but is it correct that the discount SDRC is now at is broadly "fair" given the extra shares the voting shares will receive? ie the market thinks that this is more or less a done deal. I think it is, but would appreciate a second opinion. Just before posting this, I see the discount has widened to about 19.8%. SDR holders will get an extra 17.6% shares, so this discount doesn't seem unusual given lack of complete certainty, timing etc.

Seeing as there are currently 282,500,000 shares of each class in issue (total of 565,000,000) the overall dilution across both classes will be half the 17.6% dilution caused by the new voting shares, so around 8.8%. As I said before, all things being equal you would expect the dividend to be reduced by this amount unless a larger dividend payment is made to allow for this dilution.

All the best, Si

Si is looking at a different Annual Report from me. The 2021 Report tells me that issued and fully paid there are 226 million voting shares and 56.5 million non voting shares, a total of 282,500,000.

Dod

[simoan]

I know SDRC and SDR prices are moving around a bit but is it correct that the discount SDRC is now at is broadly "fair" given the extra shares the voting shares will receive? ie the market thinks that this is more or less a done deal. I think it is, but would appreciate a second opinion. Just before posting this, I see the discount has widened to about 19.8%. SDR holders will get an extra 17.6% shares, so this discount doesn't seem unusual given lack of complete certainty, timing etc.

Seeing as there are currently 282,500,000 shares of each class in issue (total of 565,000,000) the overall dilution across both classes will be half the 17.6% dilution caused by the new voting shares, so around 8.8%. As I said before, all things being equal you would expect the dividend to be reduced by this amount unless a larger dividend payment is made to allow for this dilution.

All the best, Si

Si is looking at a different Annual Report from me. The 2021 Report tells me that issued and fully paid there are 226 million voting shares and 56.5 million non voting shares, a total of 282,500,000.

Dod

Sorry if the numbers are incorrect, I should've referenced the AR. It seems my source of share count numbers (Stockopedia) is completely wrong in showing 282,500,000 for both classes of share. In fact it is the total in issue across both classes.

All the best, Si