What effect will the share repurchase have on key per‑share metrics such as earnings per share (EPS), return on equity (ROE), and free cash flow per share?
A share‑buy‑back reduces the number of outstanding shares, so any given level of earnings, equity or cash generated by the business is now spread over a smaller share base. Earnings per share (EPS) therefore rises automatically – the same net income is divided by fewer shares, delivering a higher per‑share profit without any change in the underlying operating performance. Because EPS is a key driver of valuation multiples, the market will typically reward the move with a price‑support level; in a relatively liquid European‑style stock such as Royal Unibrew (RUB) you can often see a short‑term bounce as the buy‑back is announced and the share‑reduction is executed.
Return on equity (ROE) is calculated as net income divided by shareholders’ equity. The cash outlay for the repurchase reduces the equity balance on the balance sheet, while net income is unchanged (or may even improve if the buy‑back eliminates a higher‑‑cost capital structure). Consequently, ROE also climbs, signalling a more efficient use of the remaining capital. This higher ROE can attract growth‑oriented investors and may tighten the price‑to‑book multiple, especially if the market perceives the company as returning excess capital rather than hoarding it.
Finally, free cash flow per share (FCF / share) follows the same arithmetic: total free cash flow stays constant (or may be slightly lower after the cash outlay) but is now allocated to fewer shares, lifting the per‑share figure. The incremental FCF / share is a useful gauge of the “real” cash return to shareholders and can be a catalyst for a modest upside in the stock, particularly on technical charts where the buy‑back volume often coincides with a breakout of short‑term resistance.
Trading implication: The announcement should be viewed as a bullish catalyst. Expect a modest price appreciation in the near term as EPS, ROE and FCF / share all improve, tightening valuation multiples. A short‑position would need a clear downside catalyst; a long‑position can be added on any pull‑back to the February‑25 support level, with a target set near the next technical resistance (e.g., the prior swing high) and a stop just below the buy‑back‑induced floor.