Every now and then, I like to keep track of companies which have been buying back their own shares. That?s because share buybacks may be a sign that a company?s stock is undervalued.
Peter Lynch, the legendary manager of the U.S.-based Fidelity Magellan Fund, also included buybacks as one of the criterion in his investing checklist. To Lynch, it?s a good sign if a company or its insiders are buying shares.
Of course, management may be tasking the company to buy back shares for other reasons other than its stock being undervalued (some other reasons would be to offset dilution)….
Every now and then, I like to keep track of companies which have been buying back their own shares. That’s because share buybacks may be a sign that a company’s stock is undervalued.
Peter Lynch, the legendary manager of the U.S.-based Fidelity Magellan Fund, also included buybacks as one of the criterion in his investing checklist. To Lynch, it’s a good sign if a company or its insiders are buying shares.
Of course, management may be tasking the company to buy back shares for other reasons other than its stock being undervalued (some other reasons would be to offset dilution). And even if management feels that the stock’s undervalued, they may well be wrong in their assessment too. But, companies that have been buying back their own shares are still worth digging further into.
With these in mind, let’s take a look at two companies that have been engaged in buybacks these past few weeks.
1. Straco Corporation Ltd (SGX: S85)
The company’s a developer and operator of tourism attractions and it has three such assets in China (two aquariums, namely the Shanghai Ocean Aquarium and Underwater World Xiamen, and one aptly-named cable car-related asset in Lintong Lixing Cable Car).
In late 2014, Straco added another flagship asset to its portfolio with the purchase of the Singapore Flyer, one of the largest obversation wheels in the world. You can also read more about the firm in here.
From 3 to 16 December 2015, Straco had engaged in share buybacks on four different occasions, buying a total of 1.14 million shares of its own shares for a collective sum of S$965,775.
Straco has a daily share buy-back mandate which started on 29 April 2015. Since the start of the mandate, the company has bought back a total of 4.5 million shares of itself, or equivalent to 0.52% of the company’s issued shares.
Straco is currently trading at S$0.885. At that price, the firm’s valued at 16 times trailing earnings and offers a dividend yield of 2.3% (thanks to its 2014 pay out of S$0.02 per share).
2. SIA Engineering Company Ltd (SGX: S59)
SIA Engineering, a subsidiary of Singapore Airlines Ltd (SGX: C6L), is in the aircraft maintenance, repair, and overhaul (MRO) sector and currently offers its services to more than 80 international airlines worldwide.
The company has two main business segments: 1) The line maintenance segment and 2) the repair and overhaul segment. You can read more about the firm in here.
SIA Engineering has been very busy with share repurchases of late. From 25 November 2015 to 18 December 2015, the company has bought back shares on 18 different days. SIA Engineering’s share buyback mandate started on 24 July 2015 and since then, the firm has bought back a total of 1.197 million of its owns shares.
On 23 November 2015, SIA Engineering announced that it would be selling its 10% stake in Hong Kong-based MRO services provider Hong Kong Aero Engine Services Ltd (HAESL). The buying parties are Rolls-Royce and Hong Kong Aircraft Engineering Company. SIA Engineering expects to report a net gain of around S$186.8 million resulting from arrangements related to the sale.
At its latest share price of S$3.64, SIA Engineering is valued at 24 times trailing earnings and gives a fair dividend yield of 4% with its dividend of S$0.145 per share in the fiscal year ended 31 March 2015.
A Fool’s take
Companies that are engaged in share buybacks are just a good starting point for investors looking for opportunities. It’s up to us to dig further and determine for ourselves whether a company’s shares are actually cheap or not.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo owns shares in Straco Corporation.