Qantas Airways Ltd. (QAN:ASX)

Last update - 20 February 2020 By Shannon Rivkin

QANTAS Airways Limited (QAN) announces new off-market share buyback…

QANTAS Airways Limited (QAN) is not currently held in any of our strategies, but the company has reported its interim numbers this morning and also advised that they would be conducting a new off-market share buyback. These buybacks have been wonderful arbitrages for members able to take advantage of franking credits, so usually we would be eager to recommend QAN on this basis. However, this buyback is for only $150m (less than 2% of shares) so the benefits of buying the stock are barely ahead after transaction costs, so we thought we would discuss the situation and any members wishing to buy it can do so.

What we look for with these buybacks is the maximum level at which we can be guaranteed all shares will be bought back. Ideally, we want to see this number at a total value of $3k+, but QAN is only guaranteeing purchase of 100 shares (or $675 at the current price).

While the capital component is small and any arbitrage would be worthwhile on a percentage basis, it probably isn’t worthwhile recommending the stock with an expected after-tax profit of around $100 before brokerage.

For those members already holding the stock, and able to take advantage of the franking credits, it may be worthwhile tendering your shares into the buyback. There will likely be a big scale-back but there is a good post-tax arbitrage to be had, so keep an eye out for your Buyback booklets.

For further information about the buyback arrangement, please view the following link for all publicly related information.

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