I would like to point out two paragraphs.
- If a company has to resort to improving its share price by reducing free float, it is rarely successful. By reducing free float, it is a futile exercise as the company will have to accumulate a significant amount to prop up the share price – that seems artificial no matter how you look at it as the only group really keen to own the shares is the company themselves.
And ...
- Bottom line, if it is not going to be cancelled, share buybacks are not really that big a positive in rating the company. Most times, companies who carry out share buybacks do not see significant improvements in their share price. Investors do not rate a company higher because of such an exercise as they are not buying the stock in the first place for various other reasons. In addition, the free float is not really a major factor. A worthwhile share buyback is one that subsequently involves the cancellation of the shares that have been bought back. Companies that do not do that, need to ask themselves why their share price is not at a level where it should be. Are investors not happy with the management's vision? Is the company not communicating its plans effectively? Has the company not been able to chart a credible track record? Have the financial results for the company been haphazard or inconsistent? Is the company unfocused or too diverse that nobody wants to follow/research the company? What is the management's track record in dealing with minority shareholders? Have transactions or deals been fair to all shareholders or been forced down investors' throats?
Here is one GLARING "LIVE" example.
Green Packet.
1. Dec 26th. 2007 Notice of Shares Buy Back - Immediate Announcement
Lowest price paid 2.38. Highest price paid 2.50.
2. Dec 27th. 2007 Notice of Shares Buy Back - Immediate Announcement
Lowest price paid 2.43. Highest price paid 2.53
3. Dec 28th. 2007 Notice of Shares Buy Back - Immediate Announcement
Lowest price paid 2.54. Highest price paid 2.80.
4. Jan 2nd 2008. Notice of Shares Buy Back - Immediate Announcement
Lowest price paid 2.80. Highest price paid 2.93.
So, from Dec 26th 2007 to Jan 2nd 2008, Green Packet's share buybacks saw it paid a lowest price of 2.38 and a highest price of 2.93!
Consider the points Dali made and do put that into perspective of Green Packet's current share buybacks.
Do you like what you see?
Well for the record, Green Packet, share price has been performing terribly.
Have a look below.
Green Packet's highest traded share price was 2.94 on 31st Dec 2006. GPacket closed at 2.77 yesterday, 4th Jan 2008.
Even worse, when it is the controlling shareholders who are selling the shares to the coy.
ReplyDeleteif the controlling shareholding keep buying their company shares, is it a good thing? rather than using the company's $ to buy the company share...
ReplyDeleteTotomaster,
ReplyDeleteIf the controlling shareholder continues buying the company shares, this action usually is interpreted as a vote of confidence from the controlling shareholder.
However, having said that, these actions, should not be taken for granted and equated to 'value' by the investor.
For these actions could be an act by the controlling shareholders to protect their vested interest irrespective of the indicative 'value' of the shares purchased.
well.. if a company keeps making good profit every quarter but gotten ignore by the market could b a good reason y they keep buyin the shares...
ReplyDeletey do such things happen in the first place? no institutional involvement?
also would like to ask, what are the prerequisite for a 2nd boarder to b migrated to main board?
thanks!
What do you think of Topglove's share buy back scheme. Seems every few days they buy back their shares. But doesnt seem to be affecting share price. As a company i really like Topglove and have taken their share buy back as a positive signal. Juz wondering what your thoughts on it might be.
ReplyDelete