A share buyback is a move by a listed company to buy its own shares. This can be done using the free cash flow that the company has. A company may do so if it believes its share prices are undervalued and that it’s able to deliver greater value to its shareholders by buying back shares and reducing the outstanding number shares in the market – thus giving each of its current shareholders a larger percentage of equity in the company.
According to a market update report by the Singapore Exchange (SGX) on Thursday (1 October 2020), 24 SGX primary-listed stocks bought back shares for a total consideration of $43 million in September 2020. This is much higher than the $15 million buyback consideration reported in September 2019. SGX also reported that buyback for August 2020 was at $15 million. This could be a sign that many companies find their share prices undervalued and are happy to buy their own shares with the free cash flow they currently have.
Share buyback is a corporate action that requires companies to make a public filing with regulators.
In this week’s edition of 4 Stocks This Week, we look at 4 stocks on SGX that have recorded the highest amount of share buyback in September and the possible reasons why.
Yangzijiang Shipbuilding (SGX: BS6)
Yangzijiang (SGX: BS6) is a large shipbuilding company which is based in the People’s Republic of China. Its main business is in commercial shipbuilding, producing a range of vessels such as bulk carriers, multi-purpose cargo vessels, containerships, chemical tankers, and offshore supply vessels. With the COVID-19 global pandemic, it comes as no surprise that the markets are not exactly bullish for Yangzijiang financial performance in the next couple of years given that there is likely going to be a reduction of order for new ships given the economic uncertainty. Yangzijiang share price is down by about 15% since the start of this year.
From a valuation standpoint, the company does look like it could be potentially undervalued. Its price-to-book value is at 0.61 and it’s currently trading at a dividend yield of 4.6%. It’s price to free cash flow (P/CF) is at 6.2 and its price-to-earnings (PE) ratio is at 7.6. The company also has cash and short-term investments that are worth about $2.15 billion.
Source: SGX
In September 2020, the company bought back shares that are worth about $16.4 million at an average price of $0.95.
Keppel Corporation (SGX: BN4)
Keppel Corporation (SGX: BN4) is one of the largest conglomerates in Singapore, having a business in property, offshore and marine, infrastructure and investments. After talks of a potential offer from Temasek to acquire the company did not materialise in August, Keppel Corp share price declined. Share price has gone from $5.40 (7 Aug) to $4.40 (2 Oct). Since the start of the year, Keppel share price has gone down about 35%.
From a valuation standpoint, Keppel is currently trading at a price-to-book value of 0.77. That said, it’s price to free cash flow (P/CF) is at 33.1. It has cash and short-term investment worth about $1.72 billion with total debt at about $11.7 billion.
Source: SGX
In September 2020, the company bought back shares that are worth about $8.4 million at an average price of $4.37
ST Engineering (SGX: S63)
With about 44% of its revenue derived from the Aerospace segment, ST Engineering (SGX: S63) will be heavily impacted by the air travel shut down due to COVID-19.
Since the start of the year, ST Engineering has declined by about 11% from $4.01 to $3.54. Its current price-to-book ratio is at 4.95 with the price to free cash flow (P/CF) at 11.5. In September 2020, the company bought back shares that are worth about $4.2 million at an average price of $3.41.
Read Also: 4 Stocks This Week (SIA $15B Fundraising) [30 April 2020] SIA; SIA EC; SATS; ST Engineering
Silverlake Axis (SGX: 5CP)
Silverlake Axis (SGX: 5CP) is a market leader in banking and finance software in ASEAN, for major organisations in banking, insurance, payments, retail and logistics industries. 2020 has been a poor year for the company as it has seen its share price tumbled bout 31% from $0.415 (2 Jan) to $0.285 (2 Oct). The company is currently trading at a price-to-book value of 3.0 while its price to free cash flow (P/CF) is at 10.6.
In September 2020, the company bought back shares that are worth about $3.5 million at an average price of $0.31
4 Stocks This Week is not a recommendation from us to buy or sell any of these stocks. For investors who are keen to find out more, you should continue researching about them before making your investment decisions.
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