Ann: Appendix 4D and Half Yearly Report, page-9

The problem with this company seems to be that if they are frugal with dividends and funnel excess cash into growth

@Fidosnos

I’m struggling a bit to follow your logic here.

At a forecast FY21 after-tax ROE of 26%-27%, I would be pretty disappointed (almost suspicious, in fact) if Management did not re-invest at least a portion of their surplus capital back into the business, wouldn’t you?

it doesn't help the valuation since equity is less than half the market capitalisation

How does the Company’s Market Cap affect ROE (defined as NPAT/[Book Value])?

So, the share is being priced on dividend yield rather than earnings. If it were based on equity it probably will need to fall to half the current level

Are you suggesting that a business with a pre-tax ROE of nearly 40% pa should trade flat to Book Value?

In other words, if reinvested earnings only raise equity it doesn’t benefit the shareholders proportionately.

That would only be true if one could re-invest their dividends at a higher yield than the Company’s ROE, which is no low bar.

Don’t get me wrong, I do like fully-franked dividends. Overall, though, FSA’s approach to capital management looks entirely appropriate to me, relative to the characteristics of their business.

Cheers