MRE: SGB: $300m Buy-Back Announced!

Shares in St George Bank (SGB) have soared almost 3% this morning after announcing the details of its previously flagged $300m buy-back. The ex-entitlement date is 21 December and tender period close 17 February 2006. Australia’s fifth-biggest commercial bank also reaffirmed its earning forecast of earnings per share (EPS) growth of 10% in both 2006 and 2007.

SGB likely to run-up into the Wed 21 December ex-entitlement date. The key issue from this announcement is clarification of the buy-back timing and thus the timing of any buy-back impacts on trading activity in SGB. Research by Macquarie's Quant team highlights that companies conducting an off-market buy-back on average outperform by 2% in the period between the announcement date and going ex the franking entitlement under the buy-back. For SGB the relevant ex-date is the ex-entitlement to participate in the buy-back of Wednesday 21 December.

Buy-back reflects SGB's election to convert its PRYMES hybrid issue. The $300m buy-back provides a means for SGB to distribute around one-third of its surplus franking credits. There will be only minimal change in shares on issue given the buy-back is being conducted in conjunction with the conversion of the $291m PRYMES hybrid and replacement of the PRYMES with another Hybrid issue of approximately $300m.

No impact on Macquarie Research Equities (MRE) forecasts. Although SGB had not previously disclosed the size of the buy-back, the likely magnitude was obvious. Accordingly the slight (approx 1.8m) net share reduction from the PRYMES conversion and buy-back at a discount has already been factored into MRE’s forecasts.

MRE anticipate that technical buying for the franking credits associated with the buy-back should drive support for SGB in the lead up the ex-entitlement date.