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…
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 one that has been engaged in buybacks these past few weeks.
The company in question is real estate developer CapitaLand Limited (SGX: C31). It is one of Asia’s largest real estate companies and has a presence in Singapore, China, Indonesia, Malaysia and Vietnam. With a market cap of over S$13 billion, CapitaLand is also one of the 30 constituents of Singapore’s market barometer, the Straits Times Index (SGX: ^STI).
CapitaLand’s real estate business goes beyond the development of real estate. It invests in properties as well and has a number of Singapore-listed trusts under its umbrella. These trusts include:
- CapitaLand Mall Trust (SGX: C38U), a real estate investment trust (REIT) that owns and manages retail malls predominantly in Singapore.
- CapitaLand Commercial Trust (SGX: C61U), a REIT with a Singapore-centric portfolio of commercial buildings.
- Ascott Residence Trust (SGX: A68U), a REIT that runs hospitality-related properties (such as serviced residences) in the U.S., Europe, Asia, and Australia.
- CapitaLand Retail China Trust (SGX: AU8U), a REIT that owns a portfolio of retail malls in China.
CapitaLand has a share buyback mandate that started on 18 April 2016. The company’s first buyback under the mandate was made on 30 May 2016. From then to 8 June 2016, the real estate outfit has bought back shares on multiple occasions, spending S$39.2 million on a total of 12.93 million shares.
CapitaLand’s latest results were for the first-quarter of 2016 and were released on 20 April 2016. Quarterly revenue dipped by 2.3% year-on-year to S$894.2 million but profit actually surged by 35.4% to S$218.3 million. The big jump in the bottom-line was due to fair value gains recorded on the sale of a serviced apartment in Beijing, China.
Looking ahead, CapitaLand expects property cooling measures in Singapore to “continue to weigh on the market.” The company also sees a “muted” outlook for the commercial real estate market in Singapore. A bright spot is seen in the retail properties portfolio in Singapore; CapitaLand expects its malls to “continue to provide a stable recurring income.”
Coming to China, one of its other core markets other than Singapore, the company’s residential and integrated development projects are progressing well.
A Foolish conclusion
Companies that are engaged in share buybacks are just a good starting point for investors looking for opportunities. It’s up to the individual investor to dig further and determine for him or herself 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 doesn’t own shares in any companies mentioned.