"Off market buy back to use all those otherwise useless franking credits. Can do a tender for 10% of shares."
I like your thinking, if it was able to be executed.
A structured, off-market buyback would be extremely value-accretive given that we're talking about a $2bn Enterprise Value business currently generating over $1.0bn in EBIT, so EV/EBIT of less than 2 times.
The problem is, I'm not sure how well supported it would be by shareholders, given the shape of the share price over the past two years (i.e., it has tripled, following a mostly straight line at 45 degrees to the horizontal).
Even if the stock was bought back at a 14% discount, that would still result in a great many shareholders crystallizing sizeable taxable capital gains [*], which they are likely to feel makes no sense, given the sub-2x EV/EBIT valuation. (Rational investors should be holding on very tightly to businesses at <2x EV/EBIT, not letting them go.)
So the irony is that the reason the buyback is so shareholder-value attractive from the company's standpoint is the same reason it is not that attractive for shareholders.
[*] Maybe if the buyback was designed to be effective on 1 July 2022, it might make it more attractive, but even then, I suspect it will probably only be at the margin.
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NHC Price at posting:
$2.93 Sentiment: None Disclosure: Held
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