Every now and then, I like to keep track of companies which have been buying back their own shares. 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…
Every now and then, I like to keep track of companies which have been buying back their own shares.
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.
- BreadTalk Group Limited (SGX: 5DA)
BreadTalk is a company that many Singaporeans are likely very familiar with given that its namesake BreadTalk bakeries are located all around Singapore and many other parts of Asia.
Beyond bakeries, BreadTalk organizes its businesses into the Restaurant and Food Atrium (think food courts) divisions which counts F&B retail brands such as Food Republic, Ramen Play, Din Tai Fung and more.
On 19th April 2016, the company bought back 299,200 shares at an average price of S$1.03. All told, the firm has bought a total of 830,900 shares thus far under the share buyback scheme which commenced on 22 April 2015.
Breadtalk ended the full FY2015 with moderate revenue growth of 5.9% to S$624 million against last year revenue of S$590 million. However, net profits crashed 65.7% to S$7.6 million on the back of several fair value changes: FY2014 recorded a S$10 million gain which was largely missing in FY2015 and an addition of S$2.3 million goodwill and asset impairments compared to the previous corresponding year.
Breadtalk’s shares last traded at S$1.14. With that price, it is trading at a P/E ratio of 42.195. In the latest update, Breadtalk has also signed an agreement with Myanmar Bakery Co., Ltd to establish the BreadTalk bakery chain in Myanmar. You can read more about it here.
- New Silkroutes Group Limited (SGX: BMT)
Formerly known as Digiland International Limited, New Silkroutes Group Limited (NSG) engages in trading marine gas oil and fuel oil. As part of its strategic shift to expand into the asset management business, it has acquired a 51% stake in investment manager Stamford Management. You can read more here.
In the month of April, NSG had purchased a total 152,000 shares of itself through the share buyback scheme which commenced on 27 April 2015. The average prices paid is in a tight range from S$0.32 to S$0.335.
In its latest 2nd quarter earnings, its top-line plunged 42.6% to S$6.32 million due to the reduction from the Marine Gas Oil (“MGO”) sales in its continual review of credit risks. Thus, net profits have managed to narrow its losses from a negative S$1.1 million to negative S$0.5 million due largely to lower purchases.
The company’s shares closed at a price of S$0.295 yesterday. NSG is still making losses and has no P/E ratio to speak of.
All that being said, it’s worth pointing out that more work needs to be done beyond what I have shared before proper investing decisions can be made. There are still many important questions – like on the shares’ future prospects and financial strength – which are unanswered.
Some of the companies listed above might be buying back their own shares because their management team thinks their shares are cheap. It’s our job to figure out which ones are.
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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.