$19.2bn Franking Credits -BHP buyback

BHP, Australia’s largest tax payer has now amassed $19.2 billion in franking credits. This is not valued or implied in its valuation.

I suspect once the unification deal occurs BHP may embark on a significant off market share buy back and even borrow to do so. Especially given the price is now attractive. We can realise close to $20bn in value by taking on some debt (given low net debt) and significantly increase EPS. This will also soak up the unwanted ASX holdings for UK index funds and or UK only domiciled funds.

There would be massive support from this via the Australian pension funds who ultimately hold and make the majority of the market anyway. They are taxed at 15% and 0% depending on member status, making off market buybacks extremely valuable. The buying support for this would be enormous and also reinvesting in the current business at a cheap level.

Hold this space - let’s see what happens. We won’t sit on close to $20bn in franking credits forever. I don’t want to see borrowing for extra dividends. Buybacks would be much better.