The Reece Ltd (ASX: REH) share price has jumped 13% after the company announced a significant share buyback.
Reece is a major bathroom, plumbing and HVAC business in Australia and several southern states of the US.
Reece share buyback
The business has announced an off-market share buyback. This means the company intends to take some shares off the market.
This translates into the value of the business is shared across fewer shares, increasing the underlying value of each remaining share. It can boost statistics like earnings per share (EPS), the dividend per share and return on equity (ROE).
Reece said buybacks are a “key lever” within Reece’s broader approach to capital management. The company believes the current environment makes this the right time to act.
The company said it has a strong balance sheet with “excess capacity”. It’s targeting a $250 million share buyback, with the flexibility to accept more or less, depending on demand, pricing, market conditions and other factors. There’s an upper limit of $400 million for the Reece share buyback.
After considering all the options, the board believes this is an efficient way to return excess capital to shareholders while maintaining conservative levels of borrowing and flexibility to fund future growth.
How will it work?
Eligible shareholders can apply to sell some or all of their Reece shares at a floor price of $11, representing a 6.6% premium to the last closing Reece share price.
Another option is to sell at a nominated price between $11 to $13, in $0.20 intervals.
The final option is to sell at the final buyback price, determined by Reece which will be one of the set pricing increments within a range of between $11 to $13.
Final thoughts on the Reece share price
Considering it has jumped to $11.62, it seems investors are happy with the announcement.
There is still room between the current valuation and the upper limit of the share buyback.
Time will tell what the Reece share price buyback price is, but it looks sufficiently pleasing.
It could have more room to recover from the current level, so it could still be undervalued. But, an operational turnaround won’t be easy. There are a few ASX growth shares that seem more appealing.
