Will buybacks make a comeback this year? 

Summary

  • After a low year for dividend and buyback, the companies are eyeing 2021 as a year to shore up shareholder returns as businesses and cash flows recover. 
  • Australian firms have also commenced buyback, especially the ones which have made gains on sale of assets.

Share repurchases or buybacks have become one of the sought after ways to deliver shareholder returns. Companies with growing cash piles rarely miss a chance to initiate share repurchases at market price or through tender offers. 

In the wake of cash crunch induced by the pandemic, the cons of share buybacks were felt by corporate boards as they embarked on cash saving mode in 2020. As a result, firms not only suspended share repurchases but dividends as well. 

In December 2020, the US Federal Reserve also lifted the restriction on US banks’ share repurchases. After the announcements, the US large banks told they would conduct share repurchases in the first quarter of 2021. 

Source © Kalkine Group 2020

The recovery in cash flows and firms with better liquidity are likely to resume paying dividends and conducting share buybacks. Many companies had initiated their dividend payments in the second half of 2020. 

Cash piles are not the only precursor for companies to undertake share buybacks. Just like investors, they must also not overpay for the shares. Therefore, companies should also initiate share buybacks when market prices do not reflect the value of shares. 

Source © Kalkine Group 2020

A recovery in earnings and cash flows could provide a floor for share buybacks in 2020, and some ASX firms have also announced their buyback plans. 

Healius Limited (ASX:HLS)

After confirming the sale of medical centres to BGH Capital, the company had announced $200 million share buyback program in December. It is also seeking cost-cutting initiatives to deliver shareholder returns. 

Intega Group Limited (ASX:ITG)

In November 2020, the company commenced its share buyback plan. Over the next 12 months, it is seeking lap up about 10% of shares in issue. Board also noted that buybacks would be conducted when shares trade below intrinsic value. 

Ampol Limited (ASX:ALD)

In November, the company announced its buyback plans after completing the sale of retail convenience property sale. It said the proceeds are going to be used for reducing debt and shareholder returns.


 


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