The JB Hi-Fi Limited (ASX: JBH) share price has started the week very strongly.
In early afternoon trade, the retail giant's shares are up 4.5% to $51.30.
At one stage today, the JB Hi-Fi share price was up as much as 7.5% to $52.75.
Why is the JB Hi-Fi share price racing higher today?
Investors have been bidding the JB Hi-Fi share price higher today following the release of its half year results.
And while the retailer had already pre-released its sales and profit figures in January (sales down 1.6% and profit down 9.4%), there was enough included in the release to get investors excited.
Firstly, the release included a trading update which revealed positive trends so far in the second half.
JB Hi-Fi advised that total sales were up 4.3% for JB Hi-Fi Australia and 2.5% for The Good Guys during January. And although the JB Hi-Fi New Zealand business reported a 1.5% decline in sales for the month, this is an improvement on what it recorded during the first half.
But perhaps the item that has given the JB Hi-Fi share price the biggest boost was news that it is following the lead of the banks by returning funds to shareholders through a share buyback.
According to the release, JB Hi-Fi is launching an off-market share buyback of up to $250 million. Combined with its fully franked interim dividend of 163 cents per share, this will mean a total of up to $437 million will be returned to shareholders.
Why launch a buyback?
A separate announcement explains the rationale for the buyback.
Chairman Stephen Goddard commented: "Due to JB Hi-Fi's continued strong financial performance and strong cashflow generation, JB Hi-Fi has surplus capital and a significant franking credit balance."
"After returning capital to shareholders via the Buy-Back, JB Hi-Fi will still maintain a conservative gearing position with the financial flexibility to pursue growth opportunities. The Board believes that the Buy-Back can be completed without adversely affecting JB Hi-Fi's capacity to pay fully franked dividends for the foreseeable future," he added.
What are the terms?
Eligible shareholders will be able to tender their shares at discounts of 8% to 14% to the market price. The market price will be calculated as the volume weighted average price of the JB Hi-Fi share price over the five trading days up to and including the closing date of 8 April.
The capital component of the buyback price is $3.18, with the remainder classed as a fully franked dividend.
Goldman Sachs estimates that this buyback, which is happening sooner than it anticipated, represents approximately 5% of its issued capital.
Goldman commented: "Management announced an off-market buyback of up to A$250mn. We expected capital management to be undertaken at year-end, making the timing a positive surprise. At the last closing price, the 8-14% discount represents a total buyback of c. 4.8% to 5.2% of issued capital."
