Share Buybacks 

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British American Tobacco (March 2024)

BAT reduced its stake in ITC stake to buyback own shares. BAT sold 436.85Mn ITC shares (~3.5% of ITC’s issued share capital) to institutional investors by way of an accelerated book building process (“Block Trade”). BAT’s ITC shares were picked up by more than 30 institutional investors including mutual funds, pension funds, insurance companies and sovereign wealth funds. The Government of Singapore and ICICI Prudential Fund (51%-49% JV between ICICI Bank and Prudential) emerged as the top buyers of the BAT’s ITC shares. Local sources reported that the Block Trade was executed at an average price of ₹400.4 for a total amount of ₹175Bn. BAT reported that the net proceeds amounted to ₹166.9Bn (£1.57Bn) – implying a gross-to-net difference of 4.6%.

Following the stake sell, BAT’s stake in ITC is reduced to ~25.5% – which is sufficient (>25%) to keep the board seats and veto rights (thereby, the ability to exercise influence over ITC’s strategic direction).

Subsequently, BAT announced the initiation of a £1.6Bn share repurchase program (SRP; ~3% of share capital). The first tranche of the SRP (£700Mn) will last from 18 March 2024 to 31 December 2024. The second tranche (£900Mn) will be executed in 2025. Concurrently, BAT also announced a new leverage target range of 2-2.5x adjusted net debt / EBITDA.

In the first five days of the new SRP (May 18-22), BAT purchased 1.46Mn shares for a total amount of £34.8Mn (average price paid: £23.85). Based on the established purchasing pattern, BAT’s new SRP is set to last around 100 trading days (i.e. £7Mn x 100 days).

Number of shares purchased x Average price paid = Amount

– Day 1: 280k x £23.83 = £6.67Mn

– Day 2: 300k x £24.16 = £7.25Mn

– Day 3: 300k x £23.88 = £7.16Mn

– Day 4: 280k x £23.6 = £6.61Mn

– Day 5: 300k x £23.77 = £7.13Mn

Altria (March 2024)

Altria reduced its stake in Anheuser-Busch InBev (ABI) to buyback own shares. Altria agreed to sell 35Mn shares of ABI through a global secondary offering at a price of $61.5 per ADS (BUD) and €56.17 per ABI ordinary share. In addition, ABI will repurchase $200Mn of shares directly from Altria. The aggregate amount of the offering and repurchase by ABI is ~$2.4Bn. Altria also granted the underwriters an option to purchase up to 5.25Mn additional ABI shares at the price per ADS ($323Mn), exercisable within the next 30 days. Altria’s remaining ownership of ABI will be ~159Mn shares or ~8.1% (~154Mn shares or ~7.8%, assuming full exercise of the option).

Following the stake sell, Altria increased the existing $1Bn share repurchase program (SRP) to $3.4Bn (~4.5% of share capital). The SRP will be completed by December 31, 2024. Moreover, reflecting the balance of lower weighted-average shares outstanding versus the lower equity earnings from ABI, Altria raised FY24 adjusted diluted EPS guidance from $5.00-$5.10 to $5.05-$5.17, representing a growth rate of 2%-4.5% over the base of $4.95 in 2023. 

Imperial Brands (March 2024)

Following the completion of £1Bn share repurchase program in FY23, Imperial Brands announced a new program of £1.1Bn in October 2023 that will last until the end of September 2024. Recall: Imperial Brands distribute surplus capital to shareholders (in the form of dividends and share buybacks) while maintaining its leverage at the lower end of 2.0-2.5x net debt to EBITDA range.

On March 11, 2024, Imperial Brands announced that the first tranche of the current share repurchase program is completed. The second tranche of the program (£550Mn) will commence on March 11, 2024 and last up until October 29, 2024 (longer than initially anticipated).

In the first repurchasing period (from October 6, 2023 to March 8, 2024), Imperial Brands shares have made a round-trip from £16s to £19s and back to £16s – similar to the price action caused by the FY23 share repurchase program (see below for further details).

Altria (Feburary 2024)

In 2023, Altria repurchased 22.7Mn shares at an average price of $43.96 for a total cost of $1Bn. Subsequently, Altria launched a new $1Bn share repurchase program which will be completed by December 31, 2024.

British American Tobacco (November 2023)

In Feburary 2023, BAT announced that the share buyback repurchase is paused to focus on strengthening the balance sheet (deleveraging) in the light of investment plans (to further accelerate transformation), uncertain macro environment, higher interest rates, outstanding litigation and regulatory matters. At the end of 2022, BAT’s Adj. Net Debt/Adj. EBITDA was 2.89x. BAT is likely to re-initiate the program when its leverage (Net Debt/Adj. EBITDA ratio) is reduced sufficiently close to the middle of the 2-3x range.

At the end of June 2023, BAT disclosed £38.35Bn net debt. In the first 6 months of 2023, BAT’s free cash flow (after dividends) was -£153Mn; BAT managed to reduce its net debt by £936Mn thanks to the favorable FX impact. In the same period, adjusted net debt is reduced by £872Mn to £37.26Bn.

Assuming a similar level of debt reduction in H2 2023, BAT’s adjusted net debt could be down to ~£36.4Bn at the end of 2023. Consensus forecast for BAT’s FY23 operating profit (EBIT) is £12.76Bn. Accordingly, we would expect BAT’s adj. Net Debt/adj. EBITDA ratio to be around ~2.7x at the end of 2023 – while not knowing the terms of Russian business transfer (post-publishing note: At the Interim Business Update, BAT confirmed the ~2.7x figure for the end of 2023. At the FY23 Results release, BAT revised the year-end leverage to 2.6x).

Re-initiation of the share buyback program is the most important expectation of many market players. However, a small-sized program (£1Bn) is the maximum BAT can afford for the time being (if ever). Would a modest program be effective in supporting the BAT share price? Should BAT Management avoid caving into the short-term market pressure and focus on debt reduction? These are valid questions that are up for discussion.

Scandinavian Tobacco (November 2023)

STG announced a new kr.850Mn share buy-back program that starts on November 13, 2023 and runs until February 28, 2025. Based on the closing price before announcement (kr.109.3), the new share buy-back amount corresponds to ~7.8Mn shares – or, roughly 9% of the share capital. STG shares gained +10% in the two weeks following the initiation of the new program.

KT&G (November 2023)

At the 2023 Investor Day, KT&G announced the plan to buy back ₩1Tn worth of stocks and cancel 15% of its outstanding shares (i.e. 7.5% new purchases + 7.5% existing treasury shares) in the 2024-26 period. This is a major step-up in share re-purchase & cancellation as KT&G cancelled only 2.5% of its outstanding shares in the 2021-23 period.

Moreover, KT&G will pay ₩1.8Tn in dividends in the same period – which implies a regular dividend of ₩5,000/share (plus an annual raise). Thereby, the interim dividend of ₩1,200/share (which was paid for the first time in 2023) will not be maintained. KT&G current yields around 5.5%.

Altria (October 2023)

In the first 9 months of 2023, Altria repurchased 16.3Mn shares at an average price of $44.97 for a total cost of $732Mn. Altria shares declined 8% in this period (versus 7.7% decline in Consumer Staples ETF). At the end of Q3 2023, Altria had $268Mn remaining under the current $1Bn repurchase program (to be completed by the end of 2023). We expect Altria to remove 22.5-23Mn from the market in 2023 – corresponding to 1.3% of the share capital (modest compared to the Imperial and STG’s programs).

Imperial Brands (October 2023)

On October 5, Imperial Brands announced a new £1.1Bn share buyback program (~8% of share capital at the time of the announcement). In FY23 (October 2022 – September 2023), Imperial repurchased 52.1Mn shares (~5.5% of share capital, £1.0Bn in total). In the first two month of FY23 (October – November 2022), Imperial shares have ventured a 15% rally – yet, to close the FY23 down by 10%.

Morgan Stanley (Imperial’s broker) started the share repurchases on October 6. Since the initiation of the new program, Imperial’s one-directional, constant bid on its own shares make ~15% of its daily average trading volume and Imperial shares have gained ~15% (net of dividend).

Philip Morris International (September 2023)

At the 2023 Investor Day, PMI announced that no share repurchases are foreseen in the 2024-26 period as it prioritizes debt reduction. By the end of 2026, PMI expects its leverage (Net Debt/Adj. EBITDA ratio) to be reduced to around 2x – which would be broadly in line with level before the Swedish Match acquisition. Thereafter, PMI would be in a position to re-initiate the share repurchase program.

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