Our SMSF in pension phase holds 5,000 MTS. Do you think it is a good idea to participate in the share buy back offer and with a possible discount of up to 14%?

Hello Switzer team, Our SMSF in pension phase holds 5,000 MTS. These were purchased August 2020 at $2.50 per share and currently trading at $4. Not a bad gain. (Think Julia Lee may have been very favourable on MTS at the time so thanks Julia)

We are wondering whether to participate in the share buy back offer and with a possible discount of up to 14% whether you feel there is any advantage for us.

A: Off-market share buybacks are a “no-brainer” for zero rate or low rate taxpayers.

Metcash is no different. Assuming a market price of $4.00 and a discount of 14%, the $3.44 buyback price will comprise a fully franked dividend of $2.59 and a capital component of $0.85. For a SMSF in pension (0% tax rate), the franking credits of $1.11 will be fully refundable, so you’re your effective selling price is $4.55 – compared to a market price of $4.00!

The critical question for any buyback is what do you do if you accept?. Do you buy the shares you sell back on the ASX, or just exit the investment?

I haven’t been a huge fan of Metcash, but it has done very well lately. The brokers seem to like it, with 3 buy recommendations and 1 neutral. That said, they do see it as pretty fully priced – a consensus target price of $4.05 (range from a low of $3.80 to a high of $4.16).

If you plan to participate, tender “14%” or “final price”.  This buyback will be very well supported.

 


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