Every now and then, I like to keep track of companies that 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…
Every now and then, I like to keep track of companies that 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. Koh Brothers Group Ltd (SGX: K75)
Founded in 1966, Koh Brothers also has a long history in Singapore’s stock market, having been listed since 1994. The company is a construction, property development and specialist engineering solutions provider. Apart from Singapore, its geographical reach also stretches into Malaysia, China, and Indonesia.
Koh Brothers has worked on numerous construction and infrastructure projects in Singapore over the years. With its A1 grading given by the Building and Construction Authority (BCA), the company is allowed to bid for public sector construction projects of unlimited value.
Since the start of February this year, Koh Brothers had bought back shares of itself on three occasions, spending a total of around S$13,000 on 47,000 shares. Koh Brothers’ shares closed at S$0.28 yesterday. At that price, the company’s valued at just 4 times trailing earnings.
The construction and civil engineering group’s latest results for the year ended 31 December 2015 saw its annual revenue rise by 8% to S$427 million on the back of broad-based growth across all its different business segments. But, the bottom-line growth was weaker as profit for the year only stepped up by 3% to S$29 million.
2. SIA Engineering Company Ltd (SGX: S59)
SIA Engineering, which is a subsidiary of Singapore Airlines Ltd (SGX: C6L), is a leading player in the aircraft maintenance, repair, and overhaul (MRO) sector. Its engineering services can be divided into the line maintenance segment and the repair and overhaul segment.
SIA Engineering has been busy buying back its own shares in the month of March, making purchases on six different occasions so far. All told, the firm has bought a collective 198,200 shares of itself for S$0.704 million. At SIA Engineering’s closing share price of S$3.62 yesterday, the firm has a trailing price-to-earnings ratio of 23.
In the company’s latest earnings release, for its fiscal third-quarter ended 31 December 2015, decent results were posted. Quarterly revenue had inched up by 3.7% year-on-year to S$275 million while profit had showed growth of 6.7% to S$49.4 million. It should be noted though that SIA Engineering’s profit growth had been the result of one-off gains from restructuring activities at its associates and joint ventures.
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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 doesn’t own shares in any companies mentioned.