A: Off-market share buybacks are a “no-brainer” for zero rate or low rate taxpayers. If your marginal tax rate is 30% or higher, don’t even open the offer booklet – throw it in the bin!

Metcash is no different. Assuming a market price of $4.00 and a discount of 14%, the $3.44 buyback price will comprise a fully franked dividend of $2.59 and a capital component of $0.85. For a SMSF in pension (0% tax rate), the franking credits of $1.11 will be fully refundable, so you’re your effective selling price is $4.55 – compared to a market price of $4.00!

The critical question for any buyback is what do you do if you accept?. Do you buy the shares you sell back on the ASX, or just exit the investment?

I haven’t been a huge fan of Metcash, but it has done very well lately. The brokers seem to like it, with 3 buy recommendations and 1 neutral. That said, they do see it as pretty fully priced – a consensus target price of $4.05 (range from a low of $3.80 to a high of $4.16).

If you plan to participate, tender “14%” or “final price”.  This buyback will be very well supported.