Consumer Discretionary

Eagers Automotive shares rally on $240m share buy-back

Thu 16 Jun 22, 11:54am (AEST)
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Key Points

  • Eagers Automotive shares are down -32% year-to-date, trading at November 2020 levels
  • Eagers plans to buy back 25.7m shares worth $240m at today's prices
  • The company downgraded its second-half FY22 earnings last month

Eagers Automotive (ASX: APE) briefly rallied 11% in early trade after announcing its intention to carry out an on-market share buy-back of up to 10% of its issue capital, worth approximately $240m.

The company said the buy-back will commence on 30 June 2022 and is expected to occur progressively within 12 months from commencement, subject to market conditions. 

What’s good about a buy-back?

The buy-back “reflects the Board’s prudent focus on active capital management and is testament to the company’s strong balance sheet," Eagers said in this mornings announcement.

Eagers Automotive shares are down more than -30% since the beginning of April, in part due to volatile market conditions and also due to an earnings downgrade on 18 May.

The company said it expects a reduction in the number of new vehicles delivered to customers in the first-half of 2022, downgrading half-year FY22 to the range of $183m to $189m compared to $214.8m a year ago.

Lower vehicle deliveries was primarily due to “multiple global events” including on-going semiconductor shortages, the Russia-Ukraine conflict and Chinese covid lockdowns.

Looking to the "unclear" timing of vehicle deliveries to customers, Eagers Automotive said it is well positioned to "deliver a strong second half performance, subject to supply constraints easing."

The buy-back could be viewed as a vote of confidence from the board in the face of near-term earnings volatility due to supply-chain related issues. After all, why would a company declare a share buy-back if it didn't have the financial capacity to do so?

What does a buy-back do?

Companies sometimes conduct share buy-backs because they genuinely feel their shares are undervalued.

In the same way investors might buy the dip, the company can opt to reign in some of its outstanding shares, essentially investing in themselves.

A reduction in outstanding shares will also concentrate financial metrics, including earnings and dividends per share.

2022-06-16 11 38 09-Eagers Automotive Ltd (ASX APE) Share Price - Market Index
Eagers Automotive share price chart


Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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