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Fletcher Building shares higher on NZ$300 million share buyback update

The Fletcher Building Limited (ASX: FBU) share price has been a positive performer on Wednesday after the release of an announcement.

At the time of writing the building products company’s shares are up 1.5% to $4.29.

What did Fletcher Building announce?

This morning Fletcher Building released the final details of the share buyback announced at the end of June.

According to the release, Fletcher Building will commence its on-market share buyback on September 9 by purchasing up to 70 million shares through the NZX and ASX order matching markets at the prevailing market price from time to time.

Shares purchased under the buyback programme will be cancelled upon acquisition, and the number of shares on issue will reduce accordingly.

All in all, the company will purchase up to NZ$300 million worth of shares over a 12-month period.

Management advised that throughout the buyback it will continue to assess market conditions, its share price, available investment opportunities, and all other relevant considerations. And if necessary, it reserves the right to cease or suspend the buyback programme at any time.

Why is Fletcher Building buying back shares?

Following the completion of the sale of the Formica business for NZ$1.2 billion, the company considered a few key factors for allocation of the sale proceeds.

In June in revealed it has around NZ$600 million of debt to be repaid over the next 12 months and around NZ$250 million of cash outflows to complete its legacy B+I projects.

This put it in a position to distribute up to NZ$300 million to shareholders, with the most effective method deemed to be an on-market share buyback.

Given that its shares are trading within touching distance of a multi-year low, it is hard to argue with this logic.

I suspect that some investors have been buying its shares today on the belief that they have now bottomed. After all, this share buyback is likely to lend significant support to its share price over the next 12 months. After which, Fletcher Building’s turnaround may finally be complete.

Fletcher Building isn’t the only company that recently announced a share buyback. Qantas Airways Limited (ASX: QAN) revealed a $400 million buyback with its results and McMillan Shakespeare Limited (ASX: MMS) announced an $80 million buyback of its own.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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