Forum Archive Index - October 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

> 
> 
>Even with the payment of this special dividend, the balance sheet of
>STU is in remarkably good shape with shareholders funds now 77.5% of
>total assets.  We may not have seen the last of the special
>dividends from STU!
>
>

Arrrgh, that will teach me to read the news releases before writing 
something like this!  Not a capital raising, but a share buyback is 
now on the agenda.as announced on 6th September.  

The plan is to buy back 8,780,000 ordinary shares this year, half on 
the market and half from the 50% shareholder ('Onesteel').   I know 
buybacks work for some companies but I am uneasy about this one.

The board has conducted a review
"The major outcome of this review has been a reaffirmation of the 
Company's current focus, direction and scope of business"

If I were a fly on the wall of the next board meeting the question I 
would put to them is this:   

<rant>

If 
1/the scope of the business is not going to grow much in the 
forseeable future -and- 
2/you have just come off a cyclical business high, then
WHY ARE YOU BUYING SHARES WHEN THE PRICE ALREADY REFLECTS THIS 
CYCLICAL HIGH!

The academic answer I would get would be:

The number of shares will decrease to 

88,190,366 - 8,780,000 = 79,410,366

(Hopefully) the earnings won't decrease, so the earnings per share 
will go up = good.  Note the hopefully is in brackets!

Another way of looking at things is to say that the 8,780,000 shares 
bought back will cost approximately 8.78m x $2.90= $25.46m.  This 
will reduce shareholders equity from $123.5m to around $100m. 

If profits remain the same, this means the return on equity will go 
up from 14.8% to:

14.8% x (123.5/100) = 18.3%- Remember that figure when the FY2003 
results are issued.   

Anything less and the buyback will have been a failure!

The annoying thing is they could obtain the same increase in ROE by 
just paying the excess capital back to the shareholders in the form 
of a special dividend.  So WHY DIDN'T THEY DO IT!

</rant>

SNOOPY

PS The other thing I forgot to mention is that I have placed 
some more information on Steel and Tube on the Focus Investment Group 
board.


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