Extracts From afr
After successfully weathering “savage” macro headwinds in the three months to June 30 – including the collapse of the iron ore price, the rise of the Australian dollar and sluggish global growth – analysts are predicting a 6000 share market by the end if the year.
With cashflow growing and the “Australian credit market . . . providing a pre-tax cost of debt somewhere between 3.5 per cent and 5 per cent”, Credit Suisse argues companies are well placed to pursue buybacks that can boost earnings.
- Telstra, which is widely expected to launch a $2 billion buyback when it reports its full-year earnings.
- Seven West could launch a buyback at current prices,
- Salary packaging firm McMillan Shakespeare is a prime candidate if its share price remains depressed.
- Engineering group Downer EDI could also do a buyback, although Credit Suisse noted the company preferred acquisitions.
- Automotive Holdings Group, which owns around 100 car dealerships in the country, was another candidate at its current low valuation.
- CSL to launch another buyback during earnings season.
Credit Suisse has tracked a basket of ASX stocks that have bought back more than 2 per cent of their shares and found that since 2006 the basket returned 21 per cent, compared to 6 per cent for the ASX 200 Accumulation Index.
Buyback stocks tend to
- generate much more free cash - a favourite metric for many investors
- signal that managements are attempting to beat their cost of capital.
Credit Suisse has forecast the ASX 200 will end the year at 6000 points, up from the current level of 5465.
This story originally appeared at afr.com.au