Might be as simple as getting in while there's a pull back over the last few days. Still not sheep stations in the scheme of things.

@Arizona nothing I can see. All upcoming options are well and truly in the money, and nothing else I can see in the Rem Report from 2023.

Agree with @rh8178 they tend to up the volumes a bit when (I assume) they perceive the SP to be low ... buying the dip ... but hardly "sheep stations".

I only note it because to me it sends a signal of when they preceive additional value - but this perception seems very much anchored on recent SP, rather than any more fundamental view is you look at the behaviour across the entire buyback program.

@rh8178 That makes sense.

I'm always a sceptic, looking for problems/issues.

Perhaps they just see the SP as cheap.

Perhaps they have a positive report coming also.

As you say, not sheep stations....

Cheers @mikebrisy

@Arizona, there's an expectation that RUL will get taken out as many of it's competitors have been historically - and Mgmt have been taken out of previous ventures before.

They have recently inflected into NPAT positive and margins are widening fast showing the operating leverage they have in the business.

They've also reduced R&D spend (improving margins in the short term) and been reporting their numbers net of Mgmt incentives (which would theoretically not be incurred under new owners / mgmt).

So it looks to me like they are trying to keep share price high to maximise any potential negotiation starting price.

I've heard one fund manager say $3 would likely start a conversation and $4 would finish it. That was when prices were a fair bit lower.

Takeover is not my base case but it looks more likely for this business than most.

Disc: Held - largest position

Thanks @Slomo

that makes a lot of sense - it’s also something I have been puzzling over

Ah thanks @Slomo

I was suspicious without any understanding. Gut level stuff.

I had thought there may be some management bonus linked to the SP performance.

This is very interesting.

Thanks for your insights @Slomo

@Arizona, your instincts are good to initially look for the incentives in the Rem reports.

As did @mikebrisy, including a check on option strike prices to see if mgmt could be (but aren't) elevating share prices with buy backs to push their options into the money - sneaky!

Incentives

This instinct reminds me of Munger's "Show me the incentive and I'll show you the outcome."

Digging into this further, the STI is all cash and based on operational (not share price) targets.

The LTI is paid in ZEPOs (Zero Exercise Price Options) - mgmt have a lot of discretion in the award of these each year and LTI has been creeping up in recent years, hopefully for the right reasons...

However these are paid to KMP's not Directors and made up just 12% of their total comp in 2023 (9-10% in 2022), so not really a factor.

Skin in the game

Separately Directors (who ultimately decide on the Buy Back policy) have skin in the game (mainly the Chair and MD) holding 5.7% / $19.1m between them.

So they will be among the beneficiaries of a higher share price and specifically buying support, although it would be a very bad look and potential red flag to be selling into or shortly after a buy back program.

Capital Allocation

On balance I still think the buy back is primarily to keep the starting price high for any potential negotiation - but also likely a good use of cash given their increasing FCF yield and reduced need / perceived opportunity for it to reinvest in the business (Capex / R&D).

Other potential uses for this would be M&A - they've done a bit of this in the past (ESG related) but probably not anything obvious for them to do as they've built out their product suite slowly over a long period of time to the point where some modules are de facto industry standards or becoming so.

Dividends - would not be Fully Franked due to carried forward tax losses. Deferred Tax Assets - from accrued losses sit at $3.2m and stable across 2022 and 2023.

They have no debt to pay down (only leases) - so either have to let the cash pile up and earn circa 4% interest before tax (they are now profit making so taxable) or buy back stock.

The hurdle for buying back stock is therefore an after tax opportunity cost of about 3%, so this seems like wise capital allocation by mgmt to me.

Disc: Held.

@Slomo You clearly know RUL very well.

Its been on my watch list for months, though I am late to the party.

I'll have to take a closer look at it.

So much to do so little time...

You make some great points, the most intriguing of which is RUL being a pos. take over target.

There appears to be much to like here.

Thanks for sharing your knowledge. Much appreciated.