Share Buybacks This Year Close To 2012/13’s Combined Total

Foreword from ShareInvestor

This article “Share Buybacks This Year Close To 2012/13’s Combined Total” by Kenneth Lim was first published in The Business Times on 11 Nov 2014 and is reproduced in this blog in its entirety.

SINGAPORE-listed companies are close to buying back more of their share capital than they did in the previous two years combined, according to data compiled by ShareInvestor, a financial Internet media & technology firm owned by Singapore Press Holdings.

The 107 companies with buyback mandates have bought S$525.9 million of their own shares from the market so far this year, a 13 per cent increase from 2013 and just shy of the S$526.6 million bought back in all of 2012 and 2013. In terms of numbers of shares, those companies have taken 422.8 million shares off the market, or 0.3 per cent more than 2013’s 421.5 million shares.

Over the past week alone, five companies bought back 4.2 million shares worth S$9.1 million. They were OCBC Bank, water-treatment specialist Hyflux, massage chair retailer OSIM International, builder Lian Beng Group and marine contractor XMH Holdings. OCBC has been the most active buyer of its own stock over the past two years, in terms of the value of shares bought. The bank has bought back S$124.2 million of its own shares so far this year.

It was followed by carrier Singapore Airlines, which has acquired S$121.8 million of its own stock this year after not doing any buybacks in the previous two years.

Share buybacks are often positive for shareholders not just because it is an anti-dilutive action, but also because they send signals to the market, Voyage Research analyst Ng Kian Teck said. “One is that the company thinks the share is undervalued. The other is that investors think that if the share price is low, the company will come in and buy back the shares, so there’s some support there.”

But not all buybacks are the same. For example, it can be “contradictory” if a company buys back its shares above book value even as it tries to raise capital in the market, he added.

Investors should also be wary about putting too much faith on buybacks to boost the share price.

“Most companies only have approval for a certain quantum,” Mr Ng said. “This is how much they can buy, so it’s not unlimited.”

He also argued that companies should be judicious about the timing of their buyback purchases, by using price triggers for example, so that they do not end up buying shares at prices that are high enough to offset the benefits of the buybacks.

“When a company is aggressively doing share buybacks, it just doesn’t seem right,” he said.