Fonterra share price surges on $50 million share buyback announcement

The dairy co-op is engaging in a $50 million on-market share buyback.

| More on:
A cow leaps into air in front of a cloudy sky.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Fonterra share price leaps higher on $50 million share buyback announcement
  • Management believes the stock is undervalued at current prices
  • All purchased shares will be cancelled, reducing the number of shares on issue

The Fonterra Shareholders Fund (ASX: FSF) share price is surging higher, up 4.8% in early trade.

Fonterra shares closed yesterday at $2.75 and are currently trading for $2.88.

This comes as the dual-listed dairy cooperative announces a major share buyback.

What was the share buyback announcement?

Fonterra shares are leaping higher after the company reported it is earmarking up to $50 million for an on-market share buyback program. The buyback is set to start at the end of the month, on 30 June.

The company said the buyback could run for as long as 12 months, with Fonterra buying shares at market price.

During that time Fonterra said it “will continue to assess market conditions, its prevailing share price, available investment opportunities and all other relevant considerations”. Management retains the right to halt or cancel the program at any time.

The company will cancel all the shares its buys back. This will reduce the number of shares on issue, which should offer a tailwind for Fonterra stock.

Regulations limit the maximum number of shares the company can acquire to 5% of Fonterra’s shares that were on issue 12 months ago. That works out to just under 80.7 million shares. That number also includes the $300 million on-market buyback (the ‘Transitional Buyback’) Fonterra announced last year to help the transition to a Flexible Shareholding capital structure. That process is still pending.

Regarding the new program, management believes the stock is undervalued at current prices, driving its decision for the buyback.

“The Co-op considers the prevailing price, particularly since late April, has undervalued Fonterra shares, which is a key reason for announcing this buyback,” Fonterra chair Peter McBride said.

Fonterra share price snapshot

The Fonterra stock has struggled this year, down 19% since the opening bell on 4 January.

That compares to a year-to-date loss of 7% posted by the All Ordinaries Index (ASX: XAO).

At the current price, Fonterra shares pay a 5.8% trailing dividend yield, unfranked.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Consumer Staples & Discretionary Shares

a happy woman wearing a white towel around her chest and another around her head laughs heartily while holding two slices of cucumber over her eyes as part of a beauty regime.
Consumer Staples & Discretionary Shares

Adore Beauty share price volatile following CEO resignation

Adore Beauty's CEO has called it time.

Read more »

A man looks sadly away from his computer screen as he holds a slice of pizza in his hand with an open pizza box in front of him on his desk.
Consumer Staples & Discretionary Shares

Is it a problem for shareholders that Italians don’t like Domino’s Pizza?

The pizza chain appears to have fizzled out in Italy.

Read more »

A group of people clink wine glasses in an outdoor, late afternoon setting to celebrate the rising Treasury Wine share price
Consumer Staples & Discretionary Shares

Treasury Wine share price up amid key China trademark win

Pop open the champagne bottle: the company just won a Chinese court case.

Read more »

a small girl sits with her hand holding up the side of her face as she looks down in a downcast manner as she drinks a glass of milk through a straw.
Consumer Staples & Discretionary Shares

Why is the A2 Milk share price spilling 8% today?

It's been a tough day for A2 Milk shareholders.

Read more »

A happy farmers sifts his fingers through grain, indicating a good crop and higher prices
Consumer Staples & Discretionary Shares

Why is the GrainCorp share price up 7% today?

The agribusiness has delivered good news to the market on Wednesday.

Read more »

A person with a round-mouthed expression clutches a device screen and looks shocked and surprised.
Consumer Staples & Discretionary Shares

iSelect share price explodes 75% on takeover news

The iSelect share price is sky high after the company revealed a takeover offer from the owner of www.comparethemarket.com.au.

Read more »

ASX retail ASX property war
Consumer Staples & Discretionary Shares

ASX 200 better buy: Wesfarmers or Woolworths?

Let's see how these ASX stalwarts stack up.

Read more »

A person sitting at a desk smiling and looking at a computer.
Consumer Staples & Discretionary Shares

2 ‘high quality’ ASX shares now going for a discount: Elvest

While financial forecasts this reporting season might be scary, here is a pair of stocks that might resist the coming…

Read more »