Cashflow Effect of Nov 2018 to April 2019 Buyback
Quote:
Originally Posted by
minimoke
Sounds a bit like a Briscoes ad where you can spend $60 to save $40 on a $100 frypan.
There is a line missing though
Buying back 4,474,000 shares at $2.57 would require $11.498 mil.
Cost of funding at 5% would be $574,909 which would be deductible.
Expenses go up, profit goes down. Dividend reduces
Savings on dividends, which are paid from after tax profit would be $yet to be calculated
OK, I am going to have a go a calculating the missing line.
Actual buyback was only for 2.6m shares in the end. I am not going to go through every buyback notice to see how many dollars were spent to do this. But my look at he share price chart complete with spikes of volume traded would suggest an average share purchase price of around $2.35. So money spent on the buyback was approximately:
$2.35 x 2.6m = $6.11m
Annual borrowing cost on that money, assuming a 5% interest rate, would be:
$6.11m x 0.05 = $0.306m
The borrowing costs on that incremental amount would be 'tax deductible'. So the reduction in net profit would be:
$0.306m x 0.7 = $0.214m
Annual dividends for FY2019 are forecast to be 17cps. That dividend will not be paid out on the shares bought back. So FY2019 cashflow from dividends not to be paid as a result of the buyback will be:
2.9m x 0.17 = $0.493m
So: 'Annual Extra Dividends Not Paid' - 'Annual Extra Interest Paid' = $0.279m
This means the buyback has worked well. A real 'cashflow positive' exercise.
SNOOPY