This Real Estate Company Has Been Buying Back Its Own Shares Lately

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, included buybacks as one of the criteria 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 company I’ve chosen at random from a list of companies that have been engaged in buybacks these past few weeks.

The company in question is OUE Ltd (SGX: LJ3). As a quick background, OUE is a real estate company that is involved with many aspects of the property business.

It develops residential properties, runs hotels and resorts, and has stakes in commercial and retail properties. Two real estate investment trusts in the market – OUE Hospitality Trust (SGX: SK7) and OUE Commercial REIT (SGX: TS0U) – also belong to the OUE banner. Locally, some of OUE’s real estate investments include One Raffles Place and OUE Bayfront.

OUE has been busy buying back its shares in September. Since the start of the month, the company has bought shares of itself on 10 occasions, spending nearly S$1.22 million on 763,000 shares.

In the second quarter of 2016, OUE’s revenue for the quarter jumped by 40.4% year-on-year to S$134.3 million, mainly due to the consolidation of revenue from One Raffles Place. The bottom-line also fared much better, with profit attributable to shareholders coming in at S$25.7 million, reversing the loss of S$16.3 million seen a year ago.

OUE’s net asset value managed a slight gain as well, inching up from S$4.30 per share at the end of June 2015 to S$4.31 per share.

In the earnings release, OUE commented that the hospitality sector and office market in Singapore will face challenges due to new supply. The company also said that the rental outlook in Shanghai is “expected to be subdued” and the Singapore residential market is currently challenging.

OUE’s shares closed at a price of S$1.60 yesterday. At that price, the company trades at a price-to-book ratio of just 0.37.

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.