Everything you need to know about the latest A2 Milk share buyback

The S&P/ASX 200 Index (ASX: XJO) is having a dreadful start to the trading week so far this Monday. As it currently stands, the ASX 200 has lost a painful 2.07% and is back around 6,950 points. But the A2 Milk Company Ltd (ASX: A2M) share price is a conspicuous outlier.

A2 Milk shares are comprehensively defying the gloom on the markets today. The ASX 200 dairy share is currently up a healthy 9.06% at $5.355 a share. This move comes after A2 Milk reported its FY22 full-year earnings to the markets this morning.

As we went through at the time, these earnings saw A2 Milk report a pleasing 19.8% rise in revenues to NZ$1.45 billion. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) rose an even better 59% to NZ$196.2 million. Meanwhile, net profit after tax (NPAT) was up 42.3% to NZ$114.7 million.

But perhaps the biggest piece of news this morning was the announcement that A2 Milk would initiate a NZ$150 million ($133.65 million) on-market share buyback program.

Are share buybacks boosting the A2 Milk share price today?

A2 Milk’s managing director and CEO David Bortolussi said that “our on-market buyback of up to NZ$150 million demonstrates effective capital management and the improved confidence we have in our strategy, execution and outlook”.

This might be part of what is delighting investors today with this report.

Share buybacks, like dividends, are a form of capital return for shareholders. A buyback involves the company buying its own shares on the open market and ‘retiring’ them. This has the effect of reducing the supply of the shares. This, under the laws of supply and demand, should result in share price appreciation.

Further, buybacks reduce the overall share count for a company. As such, they are usually accretive to earnings per share (EPS) growth, seeing as there are fewer shares to divide a company’s earnings between.

Many investors (including the legendary Warren Buffett) prefer buybacks to dividends, seeing as the positive effects of share buybacks can be enjoyed without being initially taxed, unlike a dividend. So it’s perhaps no surprise that the A2 Milk share price is performing so well today.

At the current A2 Milk share price, this ASX 200 dairy share has a market capitalisation of $3.97 billion.

 

The post Everything you need to know about the latest A2 Milk share buyback appeared first on The Motley Fool Australia.

(function() {
function setButtonColorDefaults(param, property, defaultValue) {
if( !param || !param.includes(‘#’)) {
var button = document.getElementsByClassName(“pitch-snippet”)[0].getElementsByClassName(“pitch-button”)[0];
button.style[property] = defaultValue;
}
}

setButtonColorDefaults(“#43B02A”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43B02A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()

More reading

• A2 Milk share price soars 8% as company regains money-making mojo
• A2 Milk share price on watch amid earnings beat and NZ$150m buyback
• 5 things to watch on the ASX 200 on Monday
• Earnings preview: Here are 3 ASX 200 shares reporting next week
• A2 Milk share price lags ASX 200 ahead of Monday’s earnings result

Motley Fool contributor Sebastian Bowen has positions in A2 Milk. 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 recommended A2 Milk. 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/0XWQpi7