Question 1: Why is JB Hi-Fi doing an off-market share buyback? Is it a good deal?
Answer: JB hi-Fi announced on Monday an off-market share buyback of $250 million. It is doing a buyback because it has surplus capital (retailing is not a hugely capital intensive business, as most of the premises are leased) and importantly, it has surplus franking credits. It accumulates franking credits because it only pays out about 70% of its profits as dividends. Franking credits are of no value to the company – they are only of value in the hands of shareholders – and the off-market buyback becomes a tax efficient way to distribute surplus franking credits.
It will be an absolute boomer of a deal for zero rate and low rate taxpayers – that’s why the price has risen since the announcement. The buyback has an extremely low capital component of just $3.18, meaning a huge fully franked dividend in the order of $43.39. If you were to take today’s price of $54.15, assume a tender discount of 14%, the effective selling price for a 0% taxpayer would be $65.17.
Question 2: NB Global Corporate Income Trust (NBI) has taken a dip lately from about $1.90 a year ago to now approximately $1.70. Is this likely to be directly related to pending interest rate increases or something else? It had been fairly stable up until end of January.
Answer: The fall in the price of NBI (NB Global Corporate Income Trust) relates partly to the increase in US bond yields, and partly to expectations/fear. If you want to see what is really going on, have a look at the Trust’s NTA (net tangible asset value), which is published daily. It has fallen from $1.98 on 31 December to $1.89 on 15 February. Higher bond yields, and higher credit spreads, have led to the decline.
But the ASX unit price, which sometimes has no relationship to what is actually occurring with the underlying investments, has moved from $1.885 to $1.68 over this same period ($1.71 today).
Irrational trading on the ASX just creates opportunities for canny investors.
Question 3: Is Treasury Wines (TWE) a buy?
Answer: The market liked their half year result, with the shares surging by 11.7% to $11.77. Although EBIT fell by 7% to $262 million, adjusting for the impact of the ban by China on the sale of Australian produced wine, EBIT increased by 28.3%. The growth in the distribution of Penfolds branded wines to other (non-Chinese) markets, and Treasury Americas, drove the result.
I really like TWE as a long term portfolio stock. Yes, it is a buy. As for the major brokers, they have a target price of $13.45 (and this was before the profit result).
Question 4: So under CSL’s SPP (share purchase plan) terms, the issue price of new shares is A$253.57, which represents a 2.0% discount to the 5-day volume-weighted price. I can purchase CSL shares in market for $243.00, that’s a further 3.9%! So what am I missing here?
Answer: CSL nominated a time period for setting the price – the weighted average trading price over the five days leading to the closing date of the plan. They were incredibly slow in communicating the outcome – it took almost a week between the close of the offer and the announcement – and over that period, the share price fell.
And yes, you could have bought shares at about $243.00. But after their profit result today, the shares are trading at $263.69 – so SPP participants will be smiling.
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