There's a one-off boost to Heps, but the interest bill knock will remain every year until the debt is paid.
CFO Ralph Buddle says ‘we would like to think that there is still intrinsic value above the current level’. Picture: Supplied/ Moneyweb
Retailer TFG Limited launched an ambitious share buyback in September and October 2025, where it spent R1 billion buying back 3% of its shares at an average price of R105.87 a share.
It said the buyback – the first in the group’s history – was done as the board believed “that TFG shares are trading at a discount to intrinsic value and that the share repurchase will deliver long term incremental value to shareholders”.
Fast forward 10 months, and its share price has been languishing at levels just above R50 – the lowest since 2010.
There’s been some recovery over the past fortnight, with its shares up 9% to around R55.
Still, at current levels, those shares it repurchased last year have just about halved in value. Today, the market values them at R553 million.
In its 2026 financial results, it attempts to illustrate that ‘only’ R0.5 billion in net debt was raised in the first half to fund the share buyback.
However, CFO Ralph Buddle admitted that “despite the poor year, we generated sufficient cash to pay the dividends, and so the increase in debt can really be ascribed to the share buyback”.
In other words, had it not done the buyback, its cash flow position would’ve been almost even and net debt would’ve only increased by R135 million (not R1.156 billion).
Defending the decision
Buddle defended the buyback in June’s presentation, saying that: “Well, R105 was the market price in September. It was a year ago … it was post-GNU [government of national unity formation], things were still looking pretty good.
“Obviously, the whole market’s come down, retail’s all declined, us, obviously, the most. And there’s a war which only started on the 28 February. I think directionally we would like to think that there is still intrinsic value above the current level.”
When pressed, CEO Anthony Thunström, by his own admission, answered ‘very generically’.
“I think we’ve recognised buybacks as being valuable in terms of returning value to shareholders,” he said.
“I think there are a number of pieces that need to be judged at any point in time around buybacks, and principally it’s intrinsic value that we see in the share versus how comfortable we are from a debt reduction perspective.”
Things to wonder about …
Some questions about this buyback can be raised though.
TFG kept buying post its first-half end (30 September), even as its share price continued to fall. By the end of September, it had bought back 3.4 million shares at an average price of R110.17 (totalling R377 million). The remaining 6.25 million shares were repurchased at an average of R102.96.
Obviously, a reduction in the number of shares in issue provides a boost to earnings-per-share calculations.
This makes headline earnings per share (Heps) look better than it would ordinarily appear.
Had TFG not done the buyback, its headline earnings of R2.16 billion would’ve translated into Heps of around 664.7c, versus the 675.4c it actually reported (a difference of 10.7c).
The calculation is dependent on the weighted average number of shares in issue, and because TFG only began the buyback nearly six months in, around half of those repurchased shares will only reflect in the FY27 numbers.
To illustrate this, at a flat headline earnings figure for next year (once the weighted average has normalised), Heps would be around 20c-21c higher than had it not done the buyback.
Put another way, for every R1 billion in headline earnings, there is a roughly 10c boost to Heps, had it not bought back shares.
But TFG borrowed over R1 billion to fund the repurchase.
It says its effective rate (excluding TFG London and TFG Australia) for 2026 was 8.1%.
Using this interest rate means the additional R1 billion in borrowings will cost R58 million in interest every year.
One way of thinking about this is that the additional interest burden equates to 18c per share.
For the first year, there is an incremental benefit, but this disappears quickly as the interest charge remains every year until the debt is repaid.
Future of the repurchased shares?
Finally, TFG has not yet cancelled the shares.
Rather, it has retained these as treasury shares in subsidiary Foschini Stores (Pty) Ltd.
The group could use these to fund long-term incentive plans, as equity in acquisitions, to resell to raise fresh capital, or they could be cancelled permanently.
It has not publicly shared its intended use for these shares but given that its shares are trading 45% lower than their purchase price, it would be prudent to simply do nothing with them until TFG trades back above R100.
Buddle maintained that any future buybacks will really depend on the “shape” of the retailer’s debt.
At the end of March 2026, it had net debt of R8 billion, of which R1 billion was borrowings in the UK to fund the acquisition of White Stuff. The group has close to R3 billion repayable over the next three years, with the rump (R2.1 billion) ‘backloaded’ in FY28 and FY29.
Buddle said TFG is “not going to rush into doing share buybacks whilst in this cycle”.
“We prefer to kind of cut that debt somewhat”.
This article was republished from Moneyweb. Read the original here.
