The S&P/ASX 200 is at a record high, the share prices of a dozen Australian companies have hit new highs in the past 10 days, and yet boards are preparing to spend more of this year’s profits buying back their expensive shares.
Is this really a good use of excess capital? The dilemma is playing out in boardrooms this week.
We got a good glimpse of it at AMP’s half-year results on Thursday – one of the season’s early results, where the board signed off on another $150 million buyback as its shares hit a seven-year high.
Macquarie analyst Andrew Buncombe asked the obvious: why?
And, if the board thinks buying at its fresh high is a good idea, is there a price it would not buy at? Are there any “hard or fast rules or philosophies about where it would be happy to go”?
They’re good questions, and it will be interesting to watch this trading window to see whether AMP’s directors are as happy to buy with their own money as they are with that of shareholders.
AMP chief executive Blair Vernon, who inherited a significantly cleaner business than his predecessor, Alexis George, acknowledged it was a “significant point of conversation at the board”.
However, the board decided it was still the right thing to do for shareholders; it thinks the buying is value accretive.
You’d hope AMP assessed the buyback against other capital management and reinvestment options, and Vernon said the board was also mindful of its low franking balance and big retail shareholder base, which made it harder to lift dividends.
This exchange could become a focal point this reporting season and in investors’ follow-up chats with company management.
As a rule, investors like capital management and on-market buybacks because they’re flexible and should be earnings and share-price accretive, and that impact should be more lasting than a one-off special dividend sugar hit.
But we also need to acknowledge that plenty of share prices are at 12-month highs, or longer.
AMP, Computershare, Soul Patts, BlueScope Steel and Macquarie Group have all posted fresh highs this week, while it was Viva Energy, Ampol, Medibank Private, Ramsay Health Care, Vicinity Centres and Woolworths last week.
Source: https://www.afr.com/chanticleer/why-boards-are-playing-it-safe-and-buying-high-instead-of-investing-20260806-p60ly1