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What Investors Should Know About Share Buybacks By Singapore Stocks In July 2018

Last month, 52.5 million shares or units were repurchased by 37 stocks for a total amount of S$109 million, according to a recent report by the Singapore Exchange. Compared to June 2018, the latest buyback consideration was down 37%.

Blue-chip stocks took up seven spots out of the top 10 stocks with the largest buyback consideration value in July 2018.

In terms of value, the five stocks with the most share buybacks were United Overseas Bank Ltd (SGX: U11), DBS Group Holdings Ltd (SGX: D05), Wing Tai Holdings Limited (SGX: W05), Yangzijiang Shipbuilding Holdings Ltd (SGX: BS6) and Keppel Corporation Limited (SGX: BN4). These five companies contributed to 74% of the S$109 million in total consideration. The only listed bank not featured in the list above, Oversea-Chinese Banking Corp Limited (SGX: O39), slotted into the sixth spot with S$6.3 million worth of shares repurchased.

The sole real estate investment trust (REIT) featured in the July list was Keppel REIT (SGX: K71U). During its earnings release for the second quarter ended 30 June 2018, the REIT said that it would be starting a unit buy‐back programme. In an earlier article here, I mentioned that “I see Keppel REIT’s intention to buy back its units as a signal to the market that its units could be undervalued”.

I added that when Keppel REIT starts repurchasing its units, “it could be a stronger signal that its units are indeed undervalued”, as the REIT’s manager mentioned that it would “only purchase units when it is accretive to distribution and net asset value per unit”.

In July, the REIT’s manager repurchased 3.5 million units of Keppel REIT on 27, 30 and 31 July, for a total consideration of S$4.1 million. The units were bought back at a price range of S$1.15 to S$1.18 each. Keppel REIT took the seventh spot in the July share buyback list.

Warren Buffett is a huge advocate of companies buying back shares – if done for good reasons. And that is, if the company’s shares are undervalued, and the reinvestment opportunities into the business are not as attractive. Buffett also believes that share buybacks can reveal a thing or two about a company’s management. He once said:

“What you’d like to do as an investor is hook them up to a machine and run a polygraph to see whether it’s true. Short of a polygraph the best sign of a shareholder-oriented management — assuming its stock is undervalued — is repurchases. A polygraph proxy, that’s what it is.”

Keppel REIT closed at S$1.19 per unit yesterday, giving a price-to-book ratio of 0.82 and a distribution yield of 4.8%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Singapore Exchange Limited, United Overseas Bank Ltd and DBS Group Holdings Ltd. Motley Fool Singapore contributor Sudhan P owns shares in Singapore Exchange Limited.