Andrew Brough’s Post

I could not agree more . Every one also seems to have forgotten that the UK domestic economy was weak going into this crisis. People have forgotten there is no Brexit deal. There are no trade deals and won’t be for a good year. Small medium sized export companies are in no mans land. Fitch in today’s downgrade also highlights this. By the way it forecasts the UK economy to contract 4%. Andy you have always been the most grounded and deep thinking investor. Sadly many of your peers particularly in the UK Equity Income funds sector are not. They chase apparent yield. I predict some of these funds will gate. Multiple Woodford experiences. Some will cost savers 50% plus. Too many inexperienced managers with questionable ability will be caught swimming with no trunks. In times like this you need experience thoughtfulness and true understanding. Miles on the clock. You my friend have that.

The horse has bolted! How many instit investors called out management teams for the leverage/buyback trade in recent years? Everyone wants Fort Knox balance sheets ... now... Private investors looking for many things including consistent, balanced div policies thought through over a cycle not EPS window dressing..

My thoughts entirely, lean balance sheets both corporate and Personal will be A thing of History

Hi Andy, hope all well in N10. Is it going to change the market for at least a generation? I think so. I see higher corporate tax rates/ higher wages and benefits/ and whatever rainy day emergency fund regulators end up insisting on as pretty much inevitable consequences of this - consequences that will drag on profits/FCF and dividends for the foreseeable future. I'm not sure that this has been grasped/priced yet. To my mind this negatively impacts forecast earnings/cashflows on a structural basis - as well as lowering the multiple/ raising the WACC one should apply to those metrics respectively. In short, it ain't pretty for equities. I wrote a short article on a broadly similar theme a week ago. Link below if you're interested. https://www.linkedin.com/pulse/sell-blip-dont-buy-dip-dan-heron/

And in the same vein..... when this is all over will UK corporation tax ever be 19% again....

Based on two economic bail outs in 10 years one might suggest it is long over due that companies retain capital to weather financial storms. Executive pay linked to share price performance may also come under scrutiny. Incentivise people to be dumb and they never let you down. I imagine dividends and buy backs return once the buffers are built up?

A separate question Andy. How long will it take the equity market to forget that by assuming a lower WACC for a leveraged company can be a recipe for a heavily discounted stock dilution as it refinances at just the wrong time in the market?

Not before you're 65, Andy!

I was always taught that Free Cash Flow was the driver in valuation models, not divs, no?

We all know that the most probable answer is no and history will show that using excessive leverage to pay back money to shareholders via any mechanism including dividends is a questionable, possibly defeatist strategy. Funds will have to be re-profiled and investors re-educated to expect more return from capital gain with the understanding that total returns may be the same or even higher in the new world but that capital drawdown blended with a lower payout ratio is not necessarily a negative outcome to create the cash return that many investors crave.