Tower Limited's Strategic Review Conclusion and Capital Return Announcement
TOWER LIMITED (TWR) Share Update September 2024 Friday 6th
Tower Limited Concludes Strategic Review and Announces Capital Return
Tower Limited (NZX/ASX: TWR) has concluded its strategic review and announced a significant capital return to shareholders.
Instant Summary:
- Conclusion of strategic review with no formal proposals.
- Removal of additional solvency margin by RBNZ.
- Reaffirmation of FY24 guidance and intended dividend.
- Proposal for NZ$45m capital return to shareholders.
Strategic Review Concludes
In December 2023, Tower Limited began a strategic review aimed at maximizing value for shareholders and optimizing its capital structure. The review included discussions with various parties about potential partnerships, risk transfer solutions, and alternative ownership structures. However, none of these discussions advanced to formal proposals. As a result, the Board decided to conclude the strategic review.
Despite the conclusion, the review identified several initiatives, including potential quota share arrangements, to support future growth if needed. Tower's Chair, Michael Stiassny, emphasized that the best course of action is to continue with the current business strategy under the existing ownership structure. The Board remains open to future proposals that align with shareholders' best interests.
RBNZ Removes Solvency Margin Requirement
As of 16 August 2024, the Reserve Bank of New Zealand (RBNZ) reduced Tower's minimum solvency margin from $15m to $0. This decision reflects Tower's robust risk and capital management processes and a significant reduction in Canterbury earthquake claims. As of 30 June 2024, Tower's adjusted solvency margin was $147.2m.
Although the reduction in the solvency margin will not directly impact dividends or other capital management actions, it underscores the company's strong financial position.
FY24 Guidance and Dividend Reaffirmed
Tower expects to report an underlying net profit after tax (NPAT) of more than $45m for the financial year ending 30 September 2024. If no large events occur in FY24, the underlying NPAT could increase by an additional $32m. The Board intends to pay a final dividend of 5 cents per share, bringing the full-year dividend to 8 cents per share, provided it remains prudent to do so.
Capital Return Proposal
Following the strategic review, the Tower Board has approved a return of NZ$45m of excess capital to shareholders through a mandatory share buyback. This return is expected to enhance earnings per share for shareholders. The capital return will be conducted as a scheme of arrangement, subject to High Court and shareholder approval, as well as confirmation from the Inland Revenue Department (IRD) that the return is not in lieu of a dividend.
The capital return will be in addition to Tower's ordinary dividend. Further details will be communicated with the release of the FY24 full-year results in November, with implementation likely in March 2025, if approved.
The conclusion of the strategic review and the removal of the additional solvency margin by RBNZ are positive indicators of Tower's financial health. The capital return proposal is likely to be well-received by shareholders, potentially boosting the stock price. However, the lack of formal proposals from the strategic review may raise some concerns about future growth opportunities.
Investor Reaction:
Analysts are likely to react positively to the capital return and the removal of the solvency margin requirement. The reaffirmation of FY24 guidance and intended dividend also provides confidence in the company's financial stability. However, the absence of formal proposals from the strategic review may lead to mixed reactions regarding long-term growth prospects.
Conclusion:
Investors should consider the positive aspects of Tower's financial health and the proposed capital return while remaining mindful of the company's future growth strategies. Staying informed about upcoming announcements and shareholder meetings will be crucial in making well-informed investment decisions.