Treasure Chest: Stocks With Buyback Potential

This story features IRESS LIMITED, and other companies. For more info SHARE ANALYSIS: IRE

By Greg Peel

Corporate share buybacks are a form of capital management which benefits shareholders through a reduced share count leading to higher earnings per share, all things being equal. With many Australian companies now cashed up after the long post GFC de-gearing process, several have undertaken or are undertaking buybacks.

The equity strategists at Goldman Sachs have screened the Australian stock market using a top-down approach overlaid with analyst (bottom up) views. Companies showing strong buyback potential are those with low gearing and only modest capital expenditure plans over the next couple of years.

Under this assessment, Goldmans has listed those companies with the strongest buyback potential as Premier Investments ((PMV)), Flight Centre ((FLT)), Wotif ((WTF)), Iluka ((ILU)), Perpetual ((PPT)), Breville Group ((BRG)), ARB Corp ((ARP)), Iress ((IRE)) and James Hardie ((JHX)).

Stocks that did not shine on the screening process but which the Goldman analysts believe show potential for buybacks include Adelaide Brighton ((ABC)), Ansell ((ANN)), Brambles ((BXB)), CFS Retail ((CFX)), Domino's Pizza ((DMP)), GUD Holdings ((GUD)), News Corp ((NWS)), Sigma Pharmaceutical ((SIP)), SMS Management & Technology ((SMX)), Suncorp ((SUN)), Telstra ((TLS)) and Whitehaven Coal ((WHC)) along with the Big Four banks.

Past research by investment bankers and stockbrokerages suggests companies announcing share buybacks are likely to outperform over a short to medium term horizon.
 

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