Cashed up firms to buy back shares

Published in the Herald Sun, July 2014 by Karina Barrymore

Cash is king, even in the share market, with listed Australian companies tipped to start dipping into their growing cash stashes to buy back shares and appease investors.

Investment bank Credit Suisse is championing the “bring on the buybacks” call, forecasting that a range of new offers will hit the market.

is based on the rising levels of free cash flow — funds that are surplus to capital expenditure plans and other needs — at many of the larger listed firms.

The lowest interest rates “in a generation” were also making borrowing a cheaper option than securing funds from shareholders and paying dividends, the bank’s analysts said.

“The Aussie equity market is on the verge of shrinking, mostly because the debt market is providing a very competitive source of capital,’’ Credit Suisse analysts Hasan Tevfik and Damien Boey said.

On current forecasts, Australia should have the highest free cash flow yield in the world by 2016.”

Dale Gillham, an analyst at fund manager Wealth Within, said most shareholders would pressure companies holding a lot of spare cash to put it to better use, such as investing in a new project, reducing company debt, buying back shares or issuing an extra dividend.

“Investors are sometimes enticed to part with their shares with a special offer such as extra tax benefits,” Mr Gillham said.

“For investors who choose not to part with their shares, they can often experience a rising share price.”

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