The Downer EDI Limited (ASX: DOW) share price could be on the move this morning. This comes after the company advised the ASX that it plans to conduct an on-market buy-back.
At yesterday's market close, the integrated services company's shares finished the day at $5.32.
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Downer buy-back program
Downer shares could push higher today as investors weigh up the company's latest positive announcement.
In its release, Downer advised that it will conduct an on-market buy-back of up to 70.1 million shares. This represents roughly around 10% of the company's outstanding shares.
Traditionally, when a company looks to purchase its own stock, this inflates its earnings per share (EPS) metric. Furthermore, the value of each share also increases as there are fewer shares on its registry.
Downer CEO Grant Fenn commented on the company's decision, saying:
Downer believes the buy-back is the most effective way to return the proceeds from its recent divestment program to shareholders.
As part of our Urban Services strategy, we have announced the sale of Mining and Laundry assets that will deliver total proceeds of $605 million. We have received $476 million so far and we expect to receive the balance by the end of the 2021 calendar year.
Management noted that its balance sheet remains strong, and its businesses are continuing to generate high operating cash conversion. Downer has a target dividend payout ratio of between 60% and 70%, in line with previous commitments.
The buy-back will be within the "10/12" limit rule. This specifies that a company cannot buy more than 10% of its shares within a 12-month period.
Downer share price snapshot
The Downer share price has moved in circles for most of the past 12 months, recording a gain of 46%. However, in more recent share price performance, year-to-date stands flat.
Based on valuation metrics, Downer commands a market capitalisation of roughly $3.7 billion, with 701 million shares on issue.
