Wholesaler Metcash Limited [ASX:MTS] has seen a 2.84% rise in their share price today, at time of writing.
This spike seems to be in response to the announcement of a share buy-back at around 8:30am this morning.
The company have seen ‘strong earnings’ in their hardware and liquor pillars. But there’s strong cash generation across all pillars this year, including the Food pillar, which was alarmingly flat in FY17.
Their full year results indicate a 4.3% increase in group sales revenue, to $14.5 billion.
As a result, Metcash reported a net cash of $42.8 million at the full year ending 30 April 2018. This is an increase of $123.6 million from their FY17 net debt of 80.8 million.
They are certainly doing well.
As such, Metcash have issued the buy-back as part of the Company’s capital management program.
The current size of Buy-Back is around $125 million, with the share price to be determined by a tender process. The price is expected to be announced on 13 August 2018.
What good will a buy-back do?
Metcash’s Capital management review determined that the wholesaler ‘has capacity to return funds to shareholders while retaining sufficient capacity to fund future growth plans’.
Many options were considered, but this off-market-buy-back seems the most ideal for both the company and its investors.
The benefits include an increase in EPS (earnings per share) and ROE (return on equity) — good signs for all shareholders.
The buy-back will also be at a discount to market price, predicted to be up to 14%.
Shareholders participating in the buy-back will also receive the final FY18 dividend of seven cents per share, fully franked. In total dividends for the year, they are looking at 13 cents per share, fully franked.
This Wednesday, 27 June marks the last day shares can be acquired for participation in the buy-back. So the clock is ticking.
Metcash ‘Working Smarter’ to improve the future
This buy-back is part of Metcash’s five-year plan of strategic focus. Other moves include growth initiatives, accelerating existing initiatives, improving infrastructure and embedding a sustainable cost culture.
This last move involves the company’s ‘Working Smarter’ program. Now in the last of its three years, this program has proven successful in ‘driving cost savings and protecting margins’. It aided in clawing the company back from its FY17 debt.
Group CEO, Jeff Adams, is optimistic about the future of Metcash. In the full-year results and financial report, published today on the ASX, he states:
‘Underlying earnings reflect the success of key programs such as Working Smarter’
‘Going forward, the next phase of our strategy aspires to deliver both growth and efficiencies over the next five years. I believe we have a good portfolio of businesses and I intend to build on the success to date in transforming Metcash. Where appropriate, we will be accelerating current pillar initiatives, as well as investing in new growth and efficiency opportunities.’
All appears to be look promising at Metcash. Hopefully the Buy-Back proves to be another success in this up-and-coming business.
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