More of Australia’s largest businesses are using excess capital from high commodity prices and a dearth of mergers and acquisitions to snap up their own shares.
So far this year, 40 companies in the S&P/ASX 300 Index have announced share buybacks, marking a 74% jump from 2021, according to data from UBS Group AG. The increasing breadth of repurchases reflects extra profits from mining and energy firms, which are among the winners from surging commodity prices resulting from the war in Ukraine.
“Surplus capital generated by strong performing business units, in particular in resources, has led companies to return capital to shareholders,” said Matthew Beggs, co-head of equity capital markets for UBS in Australia.
Whitehaven Coal Ltd., which posted better-than-expected profit in the year through June on higher fossil fuel prices, said in September it increased its buyback cap to A$620 million ($386 million). The company’s stock has quadrupled this year. Santos Ltd., Australia’s second-largest listed oil and gas firm, will spend $350 million to purchase its shares.
Companies have also used this year’s global stock slump and weaker domestic M&A to buoy their share prices. Deal activity in Australia fell about 58% in the first nine months of the year to $132.5 billion, according to Refinitiv.
National Australia Bank Ltd. has unveiled the largest buyback this year at A$2.5 billion, followed by Commonwealth Bank of Australia with its A$2 billion repurchase.
Still, companies may be more prudent going forward as earnings expectations “are consistently coming down, thanks to the growing sense that economic health is rapidly deteriorating,” said Hebe Chen, an analyst at IG Markets Ltd. “Adequate free cash flow will always be a strong weapon during a rough time in the economic cycle.”
(By Richard Henderson and Georgina Mckay)
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