Berkeley (BKG) sells Treasury shares

[Davidsb]

In a rapid but welcome volte-face, the lovely Gemma has disclosed that BKG has sold in the market some 375,000 BGK shares which it was previously holding in Treasury.

No share prices were revealed in the RNS, so we can't tell what the exact effect will be on the next dividend.

However, I would hope that around £37 per share should have been achievable, increasing the payout by more than 10p - using £37 per share, my spreadsheet now shows a dividend of 77.95p per share.

Good news at last!

[Dod1010]

I am not a shareholder in Berkeley but I must say I think if I were, that I would be asking someone in authority at Berkeley what on earth they are doing. Buying in shares one day and selling some the next (figuratively speaking) Even if they are making a turn on them that is not their job and it seems completely nonsensical. You may a bit early to be celebrating because they might be buying again tomorrow!

What is going on?

Dod

[NeilW]

Somebody has been listening too closely to financial advisors who make a turn on buying and selling shares.

Rather than just paying out the company money to the holders of the shares.

[Raptor]

Couldn't find any big sales recently but someone has been buying recently

16:35 - 29/09 Buy 243289 3,717.00p £9,043,052.13
12:17 - 27/09 Buy 220000 3,561.00p £7,834,200.00
16:35 - 28/09 Buy 153409 3,674.00p £5,636,246.66
16:35 - 27/09 Buy 142306 3,614.00p £5,142,938.84
16:35 - 26/09 Buy 105557 3,560.00p £3,757,829.20

Does not hold

Raptor.

[Bouleversee]

In a rapid but welcome volte-face, the lovely Gemma has disclosed that BKG has sold in the market some 375,000 BGK shares which it was previously holding in Treasury.

No share prices were revealed in the RNS, so we can't tell what the exact effect will be on the next dividend.

However, I would hope that around £37 per share should have been achievable, increasing the payout by more than 10p - using £37 per share, my spreadsheet now shows a dividend of 77.95p per share.

Good news at last!

They must have decided against awarding the senior execs. quite so many as planned, having got frit by all the complaints.

[Dod1010]

Couldn't find any big sales recently but someone has been buying recently

16:35 - 29/09 Buy 243289 3,717.00p £9,043,052.13
12:17 - 27/09 Buy 220000 3,561.00p £7,834,200.00
16:35 - 28/09 Buy 153409 3,674.00p £5,636,246.66
16:35 - 27/09 Buy 142306 3,614.00p £5,142,938.84
16:35 - 26/09 Buy 105557 3,560.00p £3,757,829.20

Does not hold

Raptor.

Well obviously if somebody is buying somebody else is selling, but on the dates shown it does not look as if it was the company selling, at least it is not reported in an RNS. Not sure therefore that that gets us much further forward. Were I a holder I would be phoning the Company Secretary to ask what is going on.

Dod

[Gengulphus]

In a rapid but welcome volte-face, the lovely Gemma has disclosed that BKG has sold in the market some 375,000 BGK shares which it was previously holding in Treasury.

No share prices were revealed in the RNS, ...

Which RNS, please? I ask because the only recently-issued one I can see (on any of the LSE, Investegate and the company's own website) is today's "Total Voting Rights" one https://www.investegate.co.uk/berkeley- ... 45014007S/ (link originally omitted inadvertently and edited in), which shows shares in Treasury down by 375,000 and shares in issue excluding Treasury shares up by the same amount compared with the last "Transaction in Own Shares" RNS https://www.investegate.co.uk/berkeley- ... 15016307R/. So pretty clearly 375,000 shares have been issued from Treasury - but selling them on the market is not the only way they could have been issued: issuing them under director/employee share schemes is probably the most common way of releasing shares from Treasury, and selling them other than on the market (e.g. in a placing) is another possibility.

... so we can't tell what the exact effect will be on the next dividend.

However, I would hope that around £37 per share should have been achievable, increasing the payout by more than 10p - using £37 per share, my spreadsheet now shows a dividend of 77.95p per share.

If they have been sold on the market, the price they were sold for might not be relevant. Specifically, the company said in https://www.investegate.co.uk/berkeley- ... 00062116O/ that "The Directors also announce that the next £138,850,139 shareholder return will be provided by 31 March 2018 through a combination of dividends and share buy-backs. This amount will be increased appropriately in the event that any new shares are issued either from treasury or as newly listed shares. ..." - note the rather non-descriptive words "increased appropriately". They could mean "increased by the amount the company gets for the shares". But there is at least one alternative, namely how much the company is permitted to put back into its distributable reserves, which is the lesser of the amount the company gets for the shares and the amount it paid for them when it bought them back (which came out of its distributable reserves). Basically, companies can make a profit from buying their shares back into Treasury and then selling them out of Treasury at a higher price, but any such profit counts as 'share premium account' money obtained by issuing shares at above nominal value, which is not legally available to be used to pay dividends.

It's still possible for a company in that position to pay out the full amount it gets for the shares, so as I say "increased appropriately" could mean that. But only by using up more distributable reserves than originally planned (and only if it has that much to use up), and if I were forced to bet on what it is intended to mean, my money would be on it meaning "increased by the amount returned to distributable reserves" rather than "increased by the amount the company gets for the shares". (But I'd much rather not bet at all on the question!)

For anyone who is interested in the gory legal detail, the relevant legislation was originally in amendments made to the Companies Act 1985 by the Companies (Acquisition of Own Shares)(Treasury Shares) Regulations 2003, and later adopted into the Companies Act 2006. Links to the relevant sections are http://www.legislation.gov.uk/uksi/2003 ... ion/3/made and http://www.legislation.gov.uk/ukpga/2006/46/section/731.

Good news at last!

Sorry to quite possibly be spoiling it a bit!

Gengulphus

[Breelander]

Couldn't find any big sales recently but someone has been buying recently

16:35 - 29/09 Buy 243289 3,717.00p £9,043,052.13
12:17 - 27/09 Buy 220000 3,561.00p £7,834,200.00
16:35 - 28/09 Buy 153409 3,674.00p £5,636,246.66
16:35 - 27/09 Buy 142306 3,614.00p £5,142,938.84
16:35 - 26/09 Buy 105557 3,560.00p £3,757,829.20

Does not hold

Raptor.

All of those trades bar one are the SETS auction or 'Uncrossing Trade' after the market closes. The one exception is the midday SETS auction. They are not a real single trader in action, rather the aggregate of lots of individual trades. There are three main SETS auctions: one at the open, one at the close (these set the opening and closing prices) and recently one has been introduced at midday. All liquid shares show a big Uncrossing Trade every day.

[Raptor]

Couldn't find any big sales recently but someone has been buying recently

16:35 - 29/09 Buy 243289 3,717.00p £9,043,052.13
12:17 - 27/09 Buy 220000 3,561.00p £7,834,200.00
16:35 - 28/09 Buy 153409 3,674.00p £5,636,246.66
16:35 - 27/09 Buy 142306 3,614.00p £5,142,938.84
16:35 - 26/09 Buy 105557 3,560.00p £3,757,829.20

Does not hold

Raptor.

All of those trades bar one are the SETS auction or 'Uncrossing Trade' after the market closes. The one exception is the midday SETS auction. They are not a real single trader in action, rather the aggregate of lots of individual trades. There are three main SETS auctions: one at the open, one at the close (these set the opening and closing prices) and recently one has been introduced at midday. All liquid shares show a big Uncrossing Trade every day.

First time I looked and now I know.....

[Breelander]

First time I looked and now I know.....

Gengulphus posted a detailed explanation of uncrossing trades on ADVFN quite some time ago. I can't for the life of me find the original post, the best I've found is this re-posting...

Today on ADVFN, Gengulphus kindly reposted his decription that I thought I would note for future reference...

http://www.iii.co.uk/investment/detail? ... ion=detail

[Davidsb]

So pretty clearly 375,000 shares have been issued from Treasury - but selling them on the market is not the only way they could have been issued: issuing them under director/employee share schemes is probably the most common way of releasing shares from Treasury, and selling them other than on the market (e.g. in a placing) is another possibility.

The company currently holds 420,211 shares in its Employee Benefit Trust (last published figure), and this has in the past been the source of shares issued to employees.

Shares issued to directors and senior management have historically been documented by RNS, and none of the shares issued during 2017 in this category have come from Treasury.

I haven't tracked down how BKG has previously reported shares disposed of via a placing, so that could indeed be a possibility.

...how much the company is permitted to put back into its distributable reserves, which is the lesser of the amount the company gets for the shares and the amount it paid for them when it bought them back...

The lowest average price paid since the September 2016 AGM is £28.08 on 30th January. The highest average price paid is £36.17 on 9th August. Is there a LIFO or FIFO type rule to define how the company decides on '...the amount it paid for them when it brought them back...'?

[Gengulphus]

I see that others have written brief explanations of the large trades while I've been writing the following longer one... Still worth posting it for those who are interested - it adds and corrects some detail. But if you're content with the brief explanations, you might want to skip over it!

Couldn't find any big sales recently but someone has been buying recently

16:35 - 29/09 Buy 243289 3,717.00p £9,043,052.13
12:17 - 27/09 Buy 220000 3,561.00p £7,834,200.00
16:35 - 28/09 Buy 153409 3,674.00p £5,636,246.66
16:35 - 27/09 Buy 142306 3,614.00p £5,142,938.84
16:35 - 26/09 Buy 105557 3,560.00p £3,757,829.20

Sorry, but those "Buy"s are computer-generated guesses, and IMHO not even competently-generated ones.

Basically, every trade is both a buy and a sell, but there is some sense in classifying a trade as a "buy" if the buyer initiates the trade and a "sell" if the seller does so. E.g. when you buy shares on the market, you initiate the trade and a market maker or similar operator (*) responds: they make their money by buying shares when people want to sell them and vice versa, but charging a slightly (or sometimes not so slightly!) higher price than they pay for them. For such trades, it makes some sort of sense to guess that if the reported price is above mid, it's a "buy", and if it's below mid, it's a "sell" (**).

But not all trades are of that "one party initiates, the other responds" type, and while the official trade reports don't always make it clear whether they are or not, they do sometimes contain a clear indication. And they do for every one of the trade reports you quote, in the form of the "trade type" which hasn't made it into your quote. The four timed at 16:35 have type "UT", which stands for "Uncrossing Trade" and is the single trade generated at the end of a stockmarket 'auction', in this case the 'closing auction' which normally lasts for about 5 minutes after normal stockmarket trading closes at 16:30. Such an 'auction' is basically a trade initiated by the stockmarket itself, and that suitable market participants (***) can respond to by putting in limit bids to buy or sell (or a few other types of specialised bids). At the end of the 'auction', the stockmarket system matches up as many buyers and sellers as it can at a single price, and generates a single "all the matched sellers sell to all the matched buyers at that price" trade. So the resulting type "UT" trade really is just as much a buy as a sell, with the buyers and the sellers having completely symmetrical roles. You can't even deduce how many buyers or how many sellers there are, nor how big they are except as a total...

And the remaining trade at 12:17 on 27/09 has type "NT", which stands for "Negotiated Trade". It's a trade directly between a buyer and a seller and negotiated in some way that is not specified, but I believe typically happens when a big buyer and a big seller both approach a market maker to express an interest in trading a position that is too large for the market maker to risk taking on themselves, and the market maker sees the opportunity to bring the two together and negotiate the price between them (of course charging what is essentially an introducer's/negotiator's fee for doing so). So typically it's a trade that was initiated by both buyer and seller - probably not always, but again there's no real way of picking one out from the other and so no real basis for classifying it as a "buy" or a "sell".

And so IMHO any competent method of generating "buy" or "sell" guesses by computer would first look at the trade type and classify the trade as "?", "unknown" or suchlike if it's one of the types like "UT" and "NT" in which buyer(s) and seller(s) have equivalent roles, and only if it doesn't would it move on to guessing on the basis of whether the trade price is above or below mid.

Not the only potential problem with interpreting trade reports, by the way. Others include late-reported trades, where the mid price may have moved considerably from what it was when the trade actually happened, and 'rollovers', which typically happen when someone moves shares from one account to another via the market, generating a trade from one account to an intermediary, closely followed by a trade from the intermediary to the other account. The intermediary is often paid via a fee rather than a difference in price between the two trades, in which case there will be two large trade reports of exactly the same number of shares at exactly the same price in quick succession, and the computers therefore end up guessing them both to be two trades in the same direction when it's pretty obvious that they ought to be treated as being in opposite directions...

(*) Most likely an RSP provider, in fact - they're the ones who provide the "quote you can look at and accept within 15 seconds" system.

(**) But only some sort of sense: such guesses are not guaranteed to be right. I'm certain of that because with smallcaps, from time to time my broker has managed to get me a buying price a bit below mid or a selling price a bit above mid, with the result that I know I've initiated a buy and yet it's been classified as a "sell", or vice versa.

(***) Those who have "Direct Market Access" - accounts with it are available to individuals, but one does have to have more than just ordinary "retail client" status to get such an account. That basically involves certifying that one has sufficient stockmarket experience or is a high net worth individual or is a financial professional, and also involves giving up quite a few protections that ordinary "retail clients" get.

Gengulphus

[Davidsb]

And here's the directors/senior employees, picking up a total of 305,000 shares at £8.63/share - sourced from the Employee Benefit Trust.

https://www.investegate.co.uk/berkeley- ... ds%20Alert

A number of the recipients immediately sold 47,000 shares at around £37.50/share.

So I guess that eliminates one possible destination for the Treasury shares sold......

;¬)

[Gengulphus]

Shares issued to directors and senior management have historically been documented by RNS, and none of the shares issued during 2017 in this category have come from Treasury.

Doesn't necessarily mean that the RNSes concerned are out yet - companies do have a bit of time to publish them, and the amounts may well depend on exactly what type of RNS it is. I don't know how much offhand, but I would give it a day or two...

...how much the company is permitted to put back into its distributable reserves, which is the lesser of the amount the company gets for the shares and the amount it paid for them when it bought them back...

The lowest average price paid since the September 2016 AGM is £28.08 on 30th January. The highest average price paid is £36.17 on 9th August. Is there a LIFO or FIFO type rule to define how the company decides on '...the amount it paid for them when it brought them back...'?

It's actually in the legislation links I supplied, though you can certainly be forgiven for not checking the given what I said about "gory legal detail"! ;-) The answer is a weighted average price of the purchases - which I presume basically means total amount paid for them divided by their total number. (The mathematician in me feels that the phrase "a weighted average price method" could mean any set of weightings I wanted to choose! But I'm sure that lawyers would resolve it on the basis of their interpretation of what Parliament intended - assuming it isn't spelled out more precisely somewhere else in the legislation...)

Gengulphus

[Gengulphus]

The company currently holds 420,211 shares in its Employee Benefit Trust (last published figure), and this has in the past been the source of shares issued to employees.

One other thought: what has been the past source of shares for the Employee Benefit Trust, and is it changing now the company has lots of shares in Treasury? A quick bit of digging in annual reports has found statements I read as saying that most have been shares allotted and issued by the company, and some shares bought on the market for it. I think (but am not entirely certain) that the former means newly-issued shares, but I'm pretty certain the company can alternatively issue them from Treasury to it. Would require more digging to check into the possibility, and am about to go out, so I'll leave that for you, others or tomorrow!

Gengulphus

[Wizard]

Well I hope for holders here that it means money back in the dividend pot, but I am happy to be out. This lot are too unpredictable and frankly I lost trust in them.

Terry.

[DiamondEcho]

I suspect they [the Board] were awarded large doses of shares, and so the 'Ordinary' shareholders interests have been further eroded. Hence the reduction in Treasury shares to pay the Directors off. It's all a toxic scene to me, I've no idea what's going on. No way I'm buying a company in the face of this uncertainty. They'll be buying back again next, to stick them in Treasury, to grant themselves shares at a discount again...

[Gengulphus]

Well I hope for holders here that it means money back in the dividend pot, ...

It almost certainly does - the company has said that the dividend pot will be "increased appropriately" if shares are reissued from Treasury. The point at issue here is how much money that means back in the dividend pot, not whether it does.

I suspect they [the Board] were awarded large doses of shares, and so the 'Ordinary' shareholders interests have been further eroded. Hence the reduction in Treasury shares to pay the Directors off. It's all a toxic scene to me, I've no idea what's going on. No way I'm buying a company in the face of this uncertainty. They'll be buying back again next, to stick them in Treasury, to grant themselves shares at a discount again...

I don't want to depress you, but just about every large company (and many smaller ones) has employee/director share schemes, routinely gets its shareholders to authorise buybacks every AGM, and is quite liable (not certain - there are alternatives such as special dividends) to actually do them if it feels it has surplus cash to distribute to shareholders and it doesn't want to raise future expectations by too much of a rise in the ordinary dividend. I.e. you're going to have a lot of trouble finding HYP shares to invest in for which there isn't a significant danger of what you describe happening... The only aspect of what Berkeley are doing that strikes me as at all unusual is how they do their trading-off of sums spent on buybacks against those used to pay dividends. That's something all companies have to do anyway, but most companies make a firm decision about it, announce it in their results and stick to it (apart possibly from not going through with all the buybacks if the share price rises too high or the company's financial position worsens significantly before they've been completed). Berkeley is instead making a long-drawn-out suspense story of it!

And incidentally, the big gains one sees directors (and employees) getting from such schemes are often (though not by any means always) the result of an award being made under the scheme at something around market price, but the scheme locking the shares up and only releasing them to the director (or employee) after some years have passed. If the market price has risen in a major way in those years, they make a massive gain; if it hasn't, they don't. I.e. as a shareholder, in the long term (*) one tends to perceive the biggest examples of the shareholder value erosion you describe in one's most successful shares - which might mitigate one's feelings about it!

(*) In the short term, of course, it could well be that the director gets the big benefit because the shares have been doing well for say the last five years, but you only bought last year and so have only seen the benefit of a fraction of that good performance. But that's not really any different from your position compared to that of another shareholder who has held for five years...

Gengulphus

[Davidsb]

...the big gains one sees directors (and employees) getting from such schemes are often (though not by any means always) the result of an award being made under the scheme at something around market price, but the scheme locking the shares up and only releasing them to the director (or employee) after some years have passed...

The shares issued to the directors on 2nd October were described as having been distributed under the 2011 incentive scheme. The BKG share price started the company's financial year at around £8.19/share, and finished the year to 30/04/11 at £10.60, having followed a relatively smooth upward path during the year. By the end of calendar 2011, the shares had reached £12.64. Based on those prices, distributing incentive shares at £8.63 does not seem unreasonable.

Also, it has now been confirmed that the 375,000 ex-Treasury shares were indeed moved into the Employee Benefit Trust, from which the 305,736 shares distributed to directors on 2nd October were taken. So, having adjusted for these movements, I now have the next dividend calculated as 67.71p/share.

[Gengulphus]

The shares issued to the directors on 2nd October were described as having been distributed under the 2011 incentive scheme. The BKG share price started the company's financial year at around £8.19/share, and finished the year to 30/04/11 at £10.60, having followed a relatively smooth upward path during the year. By the end of calendar 2011, the shares had reached £12.64. Based on those prices, distributing incentive shares at £8.63 does not seem unreasonable.

That does sound very plausible. But as a note of caution about such reasoning, companies often describe a scheme using the year that it was adopted (which generally requires approval by shareholders' vote), and they're typically approved for a period of ten years before the exercise is repeated (I suspect that's the legal limit on how long such schemes can last for, though I've never bothered to check whether that's actually the case). And awards can be made any time while the scheme is still in effect - so if one wants to find out when the award was made, the date of the scheme isn't a reliable guide. Digging through the relevant years' annual reports and RNSes will probably determine it, but is quite a bit of work - I've done enough to determine from the 2012 and 2017 annual reports that most of the awards under the 2011 LTIP were made at or near its outset, but not the ones to R J Stearn, who was only appointed in 2015. I don't intend to do any more!

Gengulphus