On April 1, Woolworths Group announced it was undertaking a $1.7 billion off-market buyback that would complete by May 27, with offers to participate opening from April 16 until May 24.
While current shareholders are asking if they should take up the buyback offer, non-shareholders are asking if now is the time to be buying the stock, and for both parties the answer may be a resounding yes.
The offer is to buy the shares at a 10 to 14% discount to the market price, which means Woolworths is attempting to buyback the shares at the lowest possible price.
So why would a shareholder agree to sell at a lower price than you would get on the market? The carrot to sweeten the deal is a $4.79 capital component and the balance being a fully franked dividend.
For Woolworths shareholders on the lowest tax rate or who have an SMSF, this could be a great deal. I recommend looking at the offer with your accountant to crunch the numbers before putting your hand up.
Remember, this is about what is financially good for you, and if you love Woolworths, you can always buy back the shares on market after the buyback is complete.
For those shareholders on a higher tax bracket, this offer may not be for you, but this doesn’t mean you will miss out because buybacks are often good for not only supporting the share price but for seeing it increase.
Woolworths is bullish and has grown more than 12% since October 1, 2018, while the market has risen less than 1% during that time.
I expect this rise to continue, especially since Woolworths recently announced that it is undergoing a massive restructure of its loss-making Big W stores.
If you are not currently a shareholder of Woolworths, you will not be able to get involved in the buyback but I do believe you can still reap some of the benefits that will result from it.
When a company undertakes a buyback it involves removing shares from their register, which means fewer shares are being actively traded and with fewer shares to satisfy the demand, you will often see the share price increase.
My analysis of Woolworths is that it will continue to rise strongly with my target over the next year to be between $34 and $40, which is a rise of between 10 and 25% on its current price.