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).
The post Fonterra share price surges on $50 million share buyback announcement appeared first on The Motley Fool Australia.
Should you invest $1,000 in Fonterra right now?
Before you consider Fonterra, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Fonterra wasn’t one of them.
The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
*Returns as of January 13th 2022
- BrainChip market cap is ‘not even close to where it can and should be’: CEO
- 2 reasons to invest in crypto — and 1 reason to steer clear
- Are these 2 compelling ASX shares buys in June 2022?
- Why Macquarie still sees ‘material upside’ for ASX lithium shares
- Boral share price charges higher amid controversial CEO appointment
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.
from The Motley Fool Australia https://ift.tt/bJwRsKB