This is the video in question
From 1:50 DP discusses the buy back during the interview , where he says:
"another string to our bow in terms of, looking for ways to try an improve, or I guess, close the gap between the market capitalisation and the intrinsic valuation of our assets".
In this interview it does sound that the buy back is one mechanism they have to increase the market cap... BUT, this is just one interview .
In the Proactive Interview about the IRR and buy back:
The buy back discussion starts at ~ 2:10 and at 3:00 says:
.." the frustration of the market not really recognising the value that we have built into the business , we have added this new initiative , string to our bow if you like in terms of being able to buy back our shares in the circumstances where we believe the market is not giving us that value"
This this comprehensive interview, DP also discusses the buy back
At 24:22 the discussion starts.
At 25:00 David says "... at the same time,the market cap is not reflecting that value, so if we can introduce that buy back into the equation as one way to look to, you know, the shares are cheap compared to the asset value, so some of our capital can be directed to buying back the shares"
There is no mention of the buy back being used to increase the share price. The discussions are about buying back shares cheaply . As we all know, market cap is a function of shares on issue and share price. You can increase the share price WITHOUT increasing the market cap by decreasing the share shares on issue. That is effectively what a buy back can do.
In this discussion we have lost sight of the fact that the buy back is actually about BRK returning capital to shareholders. Obviously the company would want to achieve this in the most efficient manner possible. BRK would have determined a target budget or amount in terms of how much capital it would use. Is the return of capital more or less beneficial to shareholders , especially in the long term, if that dollar amount buys back more shares or less shares?
The company will conduct the buy back as per below.
If the aim of BRK was to bid up it's share price through the buy back mechanism using VWAP +5%, and BRK controls the buy back through it's broker, it stands to reason they would have done so. If the aim of the BB is to return capital to shareholders in the most effective manner possible , then they will allow the market to set it's price. Having said that, BRK haven't indicated they won't buy back at higher prices, it just doesn't look like that time is right now.
In that context I had a discussion with a close friend of mine who is on the leadership team of a publicly listed company and he made an interesting observation.
friend..... " BRK have indicated to the market they are prepared to buy back at 1.5 cents?"
me.... " yep"
F... " and yet people are selling into the buy back at 1.4 and 1.3 ?"
M..." they sold into the BB at 1.4, but there were some sales after market at 1.3 which BRK didn't pick up as they were not at the head of the queue "
F... " some people are morons!"
cheers
Dan
(20min delay)