This Commodities Firm Has Been Buying Back Its Own Shares

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 commodities trader Olam International Ltd (SGX: O32). As a brief background, Olam is a commodities trader and it supplies food and industrial raw materials to over 16,000 customers around the world.

It operates in five segments as follows: Edible Nuts, Spices & Vegetable Ingredients; Confectionary & Beverage Ingredients; Food Staples & Packaged Foods; Industrial Raw Materials; and Commodity Financial Services, which deals with the provision of insurance-related services.

Olam has been busy buying back shares in the month of June. As of 16 June 2016, the company has spent a total of S$14.16 million to buy 7.65 million shares of itself.

Olam’s latest earnings was for its fiscal first-quarter, the three months ended 31 March 2016. The company saw its total revenue increase by 10.2% year-on-year to S$4.76 billion. Meanwhile, its net profit attributable to shareholders surged by 212.8% to S$113.6 million partly on the back of much lower finance costs.

Looking ahead, Olam believes that “the long-term trends in the agri-commodity sector remain attractive” and that it is “well positioned to benefit from this as a core global supply chain business with selective integration into higher value upstream and mid/downstream segments.

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.