Why is Ampol (ASX:ALD) trading down today?

  • January 25, 2021 01:25 PM AEDT
  • Team Kalkine
    Team Kalkine
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Why is Ampol (ASX:ALD) trading down today?

Summary

  • Ampol has closed an off-market buy-back of 11.4 million shares worth A$300.4 million.
  • The objective is to achieve a balance between returning shareholders’ capital, retaining the flexibility for investments, and maintaining a robust balance sheet.
  • The buy-back is expected to increase the Company’s EPS and ROE.

Australian leading transport fuel company Ampol Limited (ASX:ALD) has successfully completed an off-market share buy-back program. The size of the buy-back scheme was A$300.4 million, which involved 11.4 million shares.

Also Read: Crude oil bulls stare at USD 60 a barrel, forecasts and estimates you should know

There was a 14% discount on the market price of the shares for buy-back. The market price was fixed at A$30.6226, which is an average VWAP for 5 trading sessions. At the 14% discount, the buy-back price stood at A$26.34 per share.

Buy-Back Shares To Be Cancelled

The main objective of the buy-back is to maintain a sustainable business along with returning capital to shareholders. Moreover, the aim is to retain the flexibility to invest capital for future growth opportunities.

Source: 2020 Investor Day Presentation

The Company believes that the buy-back will be beneficial for the shareholders, as it is likely to boost its EPS and return on equity.

The shares bought back by the Company will be cancelled, thus the total number of shares will be reduced by 11.4 million. This represents around 5% of the issued capital.  

Understanding Buybacks

Why Ampol Opted For Buy-Back?

After analysing various alternatives for returning shareholders’ capital, off-market buy-back was considered to be the most feasible and appropriate option. The decision was followed by factors like: 

  • Off-market buy-back helped Ampol to get the shares at a 14% discount. This meant that more number of shares could be bought than the shares purchased from the on-market.
  • The shareholders will get a better tax benefit in the off-market sell of shares than the on-market.
  • The improved return on equity and earnings per share will be more beneficial to the existing shareholders.
  • No brokerage for shareholders was involved or charged in the buy-back process.

Industry Update: Crude Oil Rallies to 10-Month High After Production Cut Decision

Share Price Movement

The Company’s update on the completion of the discounted buy-back of shares at a price of A$26.34 has impacted the share price movement today. The stock traded at A$29.27, down by 4.81%, at 1:10 PM AEDT on 25 January 2021. The Company has a market cap of A$7.67 billion.

 


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