Pakson Holdings Share Buybacks

Previously blogged: Are Share Buybacks Scams?

This morning, I had decided to take a deeper look into Parkson Holdings share buybacks.

As argued by Mr. Eric Englund:

• Repurchasing shares weakens a company’s balance sheet in three key ways in that cash, working capital, and equity are diminished by the dollar amount of the shares repurchased. When a company’s stock-buyback program, over time, adds up to billions of dollars, the negative financial impact can be staggering.

Parkson Holdings started its share buybacks on 1st April 2008.

Let's look at Parkson Holdings balance sheet before it started its share buybacks and the previously reported earnings report was made on Feb 2008, Quarterly rpt on consolidated results for the financial period ended 31/12/2007.

A quick look at their cash balances versus their borrowings.

Deposits, cash and bank balances.. 1,917,255
Long term borrowings & notes....... 2,183,393
Short term borrowings....................... 52,791

And on their income statement, the following is the direct impact of their cash/loans balances

Finance income 34,674
Finance costs (46,699)

Which means, Parkson is incurring a net 12.025 million (46.699 - 34.674) in financial costs for the quarter.

On 1st April 2008, Parkson embarked on its share buybacks. Notice of Shares Buy Back - Immediate Announcement

And I have compiled a table.

And as mentioned in the earlier blog posting, Parkson then had the following announcment made on the 29th April 2008: PARKSON-Conversion of RM195,200,000 Nominal Value of 3.5% Redeemable Convertible Secured Loan Stocks 2007/2010 into 48,800,000 New Ordinary Shares (“Conversion”) and as mentioned, what if one suspect that there might be an ulterior motive for the share buybacks?

Anyway, Parkson continued it's share buybacks. The following table shows Parkson continued share buybacks.

And if I tally the figures, as of yesterday, Parkson Holdings has purchased some 9,483,000 shares valued at a whopping 49,844,402.44.

Averaging this figure out, Parkson Holdings has bought back shares at an average price of 5.256.

As of yesterday closing price of 4.58, the CURRENT value of these shares that are bought back is 43,432,140.00

Which means, currently the 'paper loss' of these shares bought back is some 6,412,262.44.

And get this, IF and IF Parkson Holdings retest the recent low of 4.28 and assuming Parkson buys back no more, at 4.28, the value of these share bought back would only be worth 40,587,240.00. Which means Parkson Holdings would have squandered some 9,257,162 million in its share buybacks!

Ah of course, some would dare argue that Parkson Holdings should be adopting a buy and hope strategy for its share buybacks. LOL!

But seriously, don't you think that Parkson Holdings had spend far too much on its share buybacks? As of yesterday, money spend was 49,844,402.44!

Let's look at Parkson last reported earnings on May 2008. Quarterly rpt on consolidated results for the financial period ended 31/3/2008

A quick look at their cash balances versus their borrowings.

Deposits, cash and bank balances...... 2,007,898
Long term borrowings & notes........... 2,104,058
Short term borrowings.......................... 40,702

And on their income statement.

Finance income 33,303
Finance costs (47,190)

What's a better alternative to these share buybacks? Well for starters, Parkson is not 'truly' cash rich! Yes, it has tons of money in its piggy bank but not less us not forget the mountain of debts it has too!

For it to be spending so much money in its share buybacks is rather insane in my opinion. As can be seen above, Parkson Holdings incurred some 13 million due to its massive financial costs for its most recent quarterly earnings. Wouldn't a better alternative is for Parkson Holdings to improve its balance sheet? ( Yup, such money ah? Bayar hutang la! )

Was Parkson Holdings shares really dirt cheap when it recklessly started buying back shares when Parkson was trading around 6.20 in April 2008? It last traded at 4.58 yesterday!

Do you really think that Parkson Holdings' share buybacks has given back 'value' to its shareholders or do you think that Parkson Holdings is simply being reckless in its management of its money?

How?