These ASX shares were buy rated even before today’s $500m buyback. How high could they go?

Diversified industrial and energy company SGH Ltd (ASX: SGH) has announced a $500 million buyback to run for the next 12 months.

The news is likely to add more share price upside to the company, which broker Morgans already has a buy rating on, along with a bullish share price target.

I’ll get to that shortly. First, let’s look at what the company has announced.

Strong balance sheet adds options

SGH said in a statement to the ASX that it would conduct an on-market buyback, starting on about August 11, coinciding with the release of the company’s FY26 results.

The company added:

The buy-back reflects SGH’s disciplined approach to capital management. Following a sustained period of strong operating cash flow and de-leveraging, SGH’s leverage has reduced below its through-the-cycle target of 2.0x (Adjusted Net Debt to EBITDA). The buyback will not constrain SGH’s ability to continue investing in its businesses or to pursue inorganic growth at scale. The program has been sized so that SGH retains substantial balance sheet capacity and the financial flexibility to fund organic investment and to act on material growth opportunities as they arise.

SGH said the final size of the buyback would depend on several factors, including market conditions, “and any unforeseen developments or circumstances that may arise in the course of the buyback”.

Analysts like the medium-term vision

Morgans recently issued a research note to its clients following an investor day held by SGH management.

They said the company set out a medium-term strategy to deliver 10% EBIT growth along with a near doubling of market capitalisation.

They added:

These ambitions are set against a track record of growing organically, while acquiring industrial businesses, improving operational performance and cash generation. SGH takes an entrepreneurial approach to leverage, gearing up to acquire what it perceives as ‘privileged assets’, with operational improvements then driving a quick deleverage.

SGH owns Caterpillar dealer Westrac, equipment hire company Coates, construction materials company Boral, plus stakes in Beach Energy Ltd (ASX: BPT), and Southern Cross Media Group Ltd (ASX: SXL).

It also has a stake in Shell‘s Crux offshore gas project.

Morgans said the company had compounded EBIT at a compound annual growth rate of 18% for more than a decade, aided by its acquisition strategy.

The analyst team at Morgans said future catalysts for the company included first gas from Crux, expected in the first half of FY28, and the group-wide deployment of AI.

They said the company was “trading at a sub-market multiple, with above-market growth”.

Morgans has a price target of $52.75 on SGH shares compared to $43.27 currently.

The post These ASX shares were buy rated even before today’s $500m buyback. How high could they go? appeared first on The Motley Fool Australia.

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Motley Fool contributor Cameron England 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 Scott Phillips.