$250m buyback sends JB Hi-Fi (ASX:JBH) share price shooting higher

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.”

The post $250m buyback sends JB Hi-Fi (ASX:JBH) share price shooting higher appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 Bruce Jackson.

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