Australia’s sharemarket is witnessing a significant surge in share buyback programs, with the nation’s largest listed companies increasingly opting to return capital to investors even as the S&P/ASX 200 hits unprecedented levels. Approximately a quarter of the companies within the S&P/ASX 200 index have initiated share repurchases since January 1, positioning the bourse to exceed last year’s record. This bonanza has coincided with a robust market rally, pushing blue-chip stocks like Computershare and Macquarie to fresh highs. AMP recently joined this trend, announcing a $150 million buyback program despite its shares reaching a seven-year peak.
Share buybacks, where a company repurchases its own stock from existing shareholders, reduce the number of shares on issue, boosting returns for remaining investors. While beneficial, some experts express caution. Sean Sequeira, chief investment officer at Australian Eagle Asset, questions the timing, noting that consistent buying at market highs may not indicate undervaluation. Boards are increasingly favouring buybacks over dividends or growth investments due to their potential tax efficiency, particularly for companies with overseas earnings or lacking franking credits. CSL, a global biotechnology company developing and delivering innovative biotherapies, completed a significant buyback earlier this year, aligning with this strategy.
The popularity of buybacks has soared, with MST Marquee projecting over 60 ASX 200 companies to engage in such programs this year, a sharp rise from just 13 in 2016. This shift towards capital discipline is influenced by shareholder engagement and new ASX rules requiring approval for larger acquisitions. While MST research indicates that most companies announcing buybacks have outperformed the market over 12 months, concerns remain about potential value destruction if companies overpay or borrow heavily. Despite widespread interest, some announced buyback programs, including those from BlueScope Steel and Qantas, have seen little progress in execution, an observation highlighted by MST Financial’s Hasan Tevfik.
