Industrials

Qube Buy-back to return $400m to shareholders

Mon 21 Mar 22, 11:49am (AEST)
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Key Points

  • Qube plans to return up to $400m of capital to shareholders over the remainder of FY22
  • The buyback opens on April 7 and closes on May 13
  • Ord Minnett upgrades Qube to Buy from Accumulate

Qube Holdings (ASX: QUB) was up around 2% at the open after the logistics giant announced it will buy back a whopping 141.9m of its shares, or around 7% of its shares on issue.

Following the completion of Qube's near $1.7bn sale of its Moorebank Logistics Park assets, the group plans to return capital to shareholders over the remainder of FY22.

Through an off-market program, Qube plans to Buy-back up to $400m ordinary shares, conducted via a tender process.

Management told investors that the sale of Moorebank Logistics Park, coupled with Qube’s strong financial performance FY21 and first half FY22 – which have contributed to a strong capital position – have made this off-market Buy-Back possible.

Returning value

“We believe that the off-market Buy-Back announced today is the most effective method to return significant value to all our shareholders and optimise our capital structure at this time,” noted Qube Chairman, Allan Davies.

“A lower capital base and share count supports Qube’s future earnings per share and dividends per share, all things being equal.”

The capital component of the buyback price is expected to be $1.61 per share, and assumes an illustrative market price of $3.03, a discount of 7%.

The buyback opens on April 7 and closes on May 13, and Qube expects to announce the results of the Buy-Back on Monday, 16 May 2022.

Strong first half

Today’s Buy-back announcement follows Qube’s reported 26% increase in revenue for the half ending 31 December 2021. Underlying earnings (EBITA) were up 18.9% while underlying EPS was also up 15.9%.

At half year, the group also revealed a 20% boost to its (fully franked) dividend, to 3 cents per share.

Despite scheduling issues and industrial disputes, the group witnessed earnings growth at Patrick, Australia’s leading container terminal operator.

While hinting at a possible Buy-back at the half year, managing director Paul Digney also noted:

“Qube is well placed to manage any emerging inflationary pressures including through contractual protections, ongoing productivity initiatives to increase efficiency and reduce costs, and pro-active engagement with customers to review their roaster logistics supply chain requirements."

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Qube Holdings share price: A six month view.

What brokers think

The group’s share price rallied to a 52-week high price of $3.46 early September last year, following the announced acquisition of Newcastle Agri Terminal (NAT).

However, the share price since bounced around 10% lower, despite rallying late February.

Based on the [five] brokers that cover Qube (as reported on by FN Arena), the stock currently trades with an 8.5% upside to the current price.

Ord Minnett believes the business is now a much cleaner integrated logistics company after the sale of Moorebank, with quality assets that will be difficult to replicate. The broker upgraded its rating to Buy from Accumulate and has lifted the price target to $3.45 from $3.40. (25/02/22).

While Morgans has a Hold recommendation and target price of $2.77, Citi reiterates a Buy rating and target price of $3.58 and believes management's positive track record of capital allocation bodes well for investors over the coming years.

Consensus on Qube is Moderate buy.

Based on Morningstar’s value of $3.11, the stock appears to be undervalued.

 

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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