Originally Posted by
Unicorn
Hi Fish
To clarify my earlier posts.
The type of buyback that I would prefer is on-market, designed to spend minimal funds, to stabilise the share price, and to mop up bargain basement shares from distressed investors in a market lacking the usual buyers. NZO needs to transition itself in the minds of the investment community from being a volatile explorer to being a stable producer with a stack of cash in the bank. A minor buyback to eliminate some of the lowest intra-day trades and to lift the closing price would help this. Simply announcing that the company is awash with cash and may buy some of its shares should in itself help price stability.
I would definitely stop this type of buyback at $1.40, as that is close enough to the NZOOD issue price to assume the market has resumed normal function. It also marks a level where the company can say it has made a good return for shareholders over the last year, so they should have confidence in supporting the growth strategy going forward. An on market buyback should not be a matter of forcing the share price against the natural market, but of countering the panic element and marketing the company as now being mature and stable.
I do not think that spending $45M on a buyback is appropriate, or is necessary to achieve these ends. I calculate current profit at around $9M a month (and by next month/week it could be anything). Spending $45M would be somewhat more than a 3/4 month profit commitment. Basing a buyback on nta is not appropriate in this case - NZO published nta is nothing more than a random number to keep the accountants happy.
A further compulsory buyback may be a good idea later on, but that is a different issue entirely. If no suitable investments can be found under the 'growth strategy', then by all means return the excess funds to shareholders. But it is far to early to make a call on that type of buyback yet. There may be some great investment opportunities ahead, and those funds may be the key to the future of NZO.
I also think the dividend policy needs to be clarified, and made appropriate to the current situation. Shareholders are more than ever looking for safety and for cashflow. Random special dividends at the whim of the board are no longer appropriate. I would like to see a solid commitment to paying 50% of net profit in dividends. But for the current year, noting that this is a 'quiet' year prior to Kupe coming on stream, 75% of the profits to be paid in dividends.
An interesting week ahead. Last week was quite tough, with the price of oil and the PRC share price being hit hard. But at the end of the week, NZO was still making fantastic money from Tui.