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What Investors Should Know About Share Buybacks by Singapore-Listed Companies in August 2018

In August, there were 30 companies buying back 43.6 million shares or units for a total amount of S$245.4 million, according to a report released by the Singapore Exchange yesterday. Compared to a year ago, the repurchases last month was up 300%. The buyback on a month-on-month basis more than doubled – in July 2018, the total share buyback amount was S$109 million.

The top five companies with the largest buyback considerations were Straits Times Index (SGX: ^STI) components. In the magnitude of total buyback considerations, those five blue-chips were DBS Group Holdings Ltd (SGX: D05), CapitaLand Limited (SGX: C31), United Overseas Bank Ltd (SGX: U11), Oversea-Chinese Banking Corp Limited (SGX: O39) and City Developments Limited (SGX: C09).

Coming in sixth was HRnetGroup Ltd (SGX: CHZ). The recruitment firm repurchased 2.4 million shares for a total consideration of S$2.2 million. As of 4 September 2018, the company’s market capitalisation was around S$890 million.

For the second month in a row, Keppel REIT (SGX: K71U) was featured on the buyback list, slotting into the seventh spot.

During its 2018 second-quarter earnings release, the real estate investment trust (REIT) revealed that it would be starting a unit buy‐back programme. In my 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 also commented 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”.

Last month, Keppel REIT’s manager repurchased 1.8 million units of the REIT for a total consideration of S$2.1 million. At yesterday’s close of S$1.21 per unit, Keppel REIT had a price-to-book ratio of 0.86 and a trailing distribution yield of 4.7%

Billionaire investor Warren Buffett is a huge advocate of companies buying back shares – if done for the correct 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 the leaders running the company. He once commented:

“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.”

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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, DBS Group Holdings Ltd and HRnetGroup Ltd. Motley Fool Singapore contributor Sudhan P owns shares in Singapore Exchange Limited.