Share Buy-Backs is not a return of cash

15 months ago, I began accumulating CBA shares around the $60 mark.

At $98 and $103, I was a seller.
A very satisfying result culminating with the company coming through with a terrific profit result…

but now CBA are buying back their own shares, at a record high price in the region of $105 per share.

https://www.afr.com/companies/financial-services/cba-in-10b-cash-splash-20210810-p58hh0

I’ll continue to be critical of such decisions.

Firstly, a share buy-back is not a “return of cash” to shareholders,
Secondly, it’s a poor decision to buy your own shares at historically high metrics (2.5 times book value to name one),
Thirdly, it’s a lazy capital allocation decision by management and the board.

With all this profit and cash, they can’t seem to use (some or part of $10 billion) to invest back into the business?

The easy thing to do is to buy your own shares (at their all-time highs) and send a few more billion out in dividends.

I hope CBA doesn’t need to raise capital in a couple years time but at least such a buy-back will improve or dress up the EPS. ROI or Total Shareholder Return figures.

Heaven forbid if any executive remuneration is based on improving any of those metrics.

😲🙊🤯

But at a later date, they can always use the beefed up equity price to acquire businesses.

by Rob Zdravevski
rob@karriasset.com.au
August 12, 2021

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