FBU - Fletcher Building

[winner69]

Loved the headline in BusinessDesk the other day 'Why is Fletcher buying and destroying its own shares?'

Sounds rather dramatic but to some degree sort of summarises misconceptions / understanding of share buy backs

[RTM]

Absolutely not.

Share buybacks might temporarily change the story (impacting on the hype component of the share price), but the fundamentals stay basically unchanged (well, there is a minute reduction of dilution).

What I am saying is - if a companies share is undervalued, than buybacks might be a good idea. If however a companies share is already overpriced - they are not. Problem is - boards are frequently quite poorly equipped to decide which situation is which. Quite funny by the way - if directors buy shares for their own portfolio, you can often (not always) trust them to do the right thing. However if they buy shares with the shareholders money (i.e. share buyback), their judgement more often seems to be clouded.

Exactly ! And at $8.00 per share ?
Tax or no tax...I would rather they gave us the dividend and let me decide whether to increase my shareholding in the company or not. Which I could easily do by buying more shares. Not at all convinced that this is a good move by FBU.
PS But they have more data / detailed knowledge of how the company is tracking than I do...so hopefully they have it right if they plan to buy back around $8.00 !

[winner69]

Less shares on issue = higher eps = higher share price .....yeah right

[Greekwatchdog]

Its an interesting argument each way. Can't recall how many they bought up to when Covid cancelled the remainder. I guess management must be very bullish going forward to spend $300m on it. Time will tell.

[Sideshow Bob]

Less shares on issue = higher eps = higher share price .....yeah right

Of course this isn't their first buyback rodeo. They announced late June 2019 for the intention to buyback up to $300m (price at the time was about $4.85), which carried on until suspended for Covid, late March last year. Not sure how much they bought in total, but price bottomed out about $4.30 but broadly tracked upwards until Covid lockdown.

[LaserEyeKiwi]

Buybacks are primarily a capital return - the most tax efficient one - and pace of buyback shouldn’t really be determined by short term share price movements, unless their is an obvious very deep temporary discount. regardless of the share price, after a buyback all remaining shareholders who did not sell will have a larger ownership percentage of the company, and whatever the market capitalization is, the share price will be higher after the buyback than before the buyback for any given market cap value.

[dibble]

Tax or no tax...I would rather they gave us the dividend and let me decide whether to increase my shareholding in the company or not. Which I could easily do by buying more shares.

Agree entirely.
And it does raise a Q (which I may have raised before...apologies, cant recall), the best possible reason I can think of for a coy to buy its own shares is because it has superior internal knowledge to the market otherwise why not leave it to shareholders to decide, if that's the case is that legal? Does anyone know if a coy itself is subject to insider knowledge laws?

[JohnnyTheHorse]

Agree entirely.
And it does raise a Q (which I may have raised before...apologies, cant recall), the best possible reason I can think of for a coy to buy its own shares is because it has superior internal knowledge to the market otherwise why not leave it to shareholders to decide, if that's the case is that legal? Does anyone know if a coy itself is subject to insider knowledge laws?

It's generally more tax efficient. It's also great for management if their performance bonuses have links to shareprice targets.

[LaserEyeKiwi]

Exactly ! And at $8.00 per share ?
Tax or no tax...I would rather they gave us the dividend and let me decide whether to increase my shareholding in the company or not. Which I could easily do by buying more shares. Not at all convinced that this is a good move by FBU.
PS But they have more data / detailed knowledge of how the company is tracking than I do...so hopefully they have it right if they plan to buy back around $8.00 !

dividends are taxed. If you wanted to increase your shareholding in FBU by using dividends, you would end up with less ownership of the company than you would by way of buyback. Likewise if you didn’t want your ownership stake in the company increased, you can instead sell the equivalent amount of shares in FBU that the buyback eliminates, that way you are effectively getting the same amount of cash you would have gotten from a dividend, but tax free (although with a small commission paid to your broker).

[BlackPeter]

dividends are taxed. If you wanted to increase your shareholding in FBU by using dividends, you would end up with less ownership of the company than you would by way of buyback. Likewise if you didn’t want your ownership stake in the company increased, you can instead sell the equivalent amount of shares in FBU that the buyback eliminates, that way you are effectively getting the same amount of cash you would have gotten from a dividend, but tax free (although with a small commission paid to your broker).

Quite simplified and incomplete view of the tax rules.

Yes, Dividends are taxable, but so are capital gains if IRD deems you a trader. No difference in this case (if you need or want to sell your shares).

Dividends come with imputation credits (helping you to save taxes) which you would not get in case of a buy back.

At the end - sometimes buy backs are more tax efficient for some individual investors, sometimes they are not. I however do not see it as desirable if boards favor with their buy back decision some of their investors over others.