thoughts on financial strategy, page-6

Dasa,
Well written. I suspect that if we were having a drink together, we could probably nut it out - (doing it by typing takes forever).

Some points to note - stocks are divided into income stocks and growth stocks. On the ASX, the banks, insurance, some FMCG companies, infrastructure stocks are regarded as income stocks. Dasa is quite correct - these stocks are owned by retirees. Other stocks are growth stocks - BHP, RIO, CSL, FMG, Seek etc are purchased by people for their capital gain. (The dividend is poor) They are purchased for the growth and sp appreciation.

A balanced portfolio would tend to have some of each (dividend and growth), but depending on people's stage in life, they may veer more to one rather than the other.

Changing OZL from a growth stock to a dividend stock may not do anything for the share price. Some investors will sell, others will buy, it becomes a zero-sum game. When a growth stock starts to pay out a high dividend it says "I see no growth."

A share buyback can be regarded as the best t/o money can buy - that is because you know all about the company you are buying. There is no risk or skeletons in the cupboard. Normally companies do buy backs to use up excess cash. The key word here is "excess". BHP for instance, allocates cash to projects, keeps some in reserve for t/o, pays a dividend and any excess cash is used to buy back BHP shares.

OZL could adopt the same strategy. It would work a bit like this:

Cash at year end = $1.6B (for eg)
Cash for acquisitions = $1B (Cash left = $600m)
Cash for Ankata = $100m (Cash left = $500m)
Cash for dividend unf at 4c = $128m (Cash left = $372m)

The $372m can be used for an on-market share buyback of about 7% of the issues capital (approx 200m shares). All things being equal, the sp would rise by about 7%. (In fact it can rise by much more - but that is for another discussion about the iceberg principle of share trading)

So Dasa, I can see both a dividend (unfranked and not big due to no franking credits) and a share buyback and still have cash.

HC42 - OZL has significant Gold (3.4moz in resources and a large tonnage on the raw material pads awaiting processing. TB indicated that they are exploring whether setting up a Gold only circuit is justified.

Hope that helps.

HT1