Travelightor, Good point about the liquidity - only a million or...

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g41

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28/04/16

15:48

Post #: 17622343
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Originally posted by travelightor ↑

Hi g41,

If I'm not mistaken the main reason for BYI not generating sufficient franking credits, is the fact that BYI is entitled for various tax incentives for film, television and other screen production in Australia, and possibly overseas too. The tax incentives reduce that amount of tax that BYI would have to pay otherwise.

Therefore, fully franked dividends is out of the question.

How about share buybacks as you suggested?

I believe on market buybacks is impractical for an illiquid stock like BYI.

As I have mentioned in my earlier post, the board holds around 42.7% of the company. In addition, there is another major shareholder (which happens to be a competitor), Fremantle Media, with 19.48%. This means that about 60% of the company are held by long term shareholders that are not likely to sell in any buybacks.

The remaining 40% is held by the public, which also include some long term shareholders that are not likely to sell.

BYI paid $0.10 dividend last year, which worked out to be about $6 million. Imagine trying to purchase $6.0 million worth of shares in a company whose market cap is only $73 million and where only 40% or $29.2 million worth of shares is potentially available in the market to be purchased.

The price of BYI would quickly rise such that it is not a good idea to continue with the buybacks.

Off market buybacks are usually structured as a combination of a capital component and a fully franked dividend component.

In BYI's case, off market buybacks is also unlikely as BYI doesn't have a lot of franking credits to structure the buybacks such that the capital component is small and the fully franked dividend is big.

Considering all of the above, I personally don't mind with BYI's current capital management decision. At least this way, the board is unlikely to use the money to purchase a lemon. The last purchase they did, buying the digital business, so far had been a disappointment.

Cheers
Travelightor

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Travelightor,
Good point about the liquidity - only a million or two over the past year, although I'd like to see them approach Freemantle with an offer for a portion of their stake with the balance placed on market as WPL did with Shell. Agree with your thoughts. However, an off market buyback with a large capital component would still be more efficient than an unfranked dividend. They also have plenty of share capital to make a capital return, such as the one WES made.

BYI Price at posting: $1.20 Sentiment: Buy Disclosure: Held
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