Franking Credit Special Dividend, page-3

I agree it would be nice to see a special dividend declared or some other capital management initiatives to bring down that $50.7m franking account balance.

Looking back to 2014, ARB had come off a relatively poor result, revenue up 2.2% & NPAT up .5%. But they still managed to declare a special dividend of $1.00 in October 2014 along with a DRP & BSP plan (@ a 5% discount) that had the effect of shifting $60m of equity from retained earnings to contributed equity and releasing $20m in franking credits to shareholders. Despite the addition on 6.8m shares to the register, ARB's EPS only dropped from 58.7cps to 57.8cps from 2014-15.

A special dividend of $1.00 today would distribute $79.7m in cash and $34.2m in franking credits to shareholders. A DRP at 5% discount to today's shareprice of $17.07 with an 80% takeup would add 3.93m shares to the register and cost about $15.9m cash.

One difference between 2014 and 2019 is that the EFY cash has dropped from $38.8m to $8.4m, but after a couple of years of heavy investment in PP&E and inventory ARB could be due for a period of consolidation and hopefully generate sufficient free cashflows to cover the dividend. Even if ARB had to borrow the full $16m it would only result in a D/E of .046x.

I hope that ARB's board seriously consider some capital management initiates in order to distribute franking credits and other benefits to shareholders after what has been a couple of years of poor total shareholder returns.