COMPANIES WHICH buy back their shares readily find favour among investors -- the buying helps to absorb any selling, especially in a down market like the current one.
Companies may keep the purchased shares as treasury shares, which can be given subsequently to employees as part of the company's performance plan.
Then there are the few that actually cancel the purchased shares. This is the most beneficial to existing shareholders, as the shrunken number of issued shares leads to a higher earnings per share and even possibly higher dividend per share.
In this regard, one company that caught our attention recently is Koh Brothers, a construction and property development company.
On 1 June, it cancelled 13.138 million treasury shares valued at S$2.7 million.
Its stated purpose was to "enhance shareholder value".
And it continues to do so: On the very same day, Koh Brothers bought back another 128,000 shares from the open market at 20.5 cents apiece. That's at a big discount to its NAV of 39.3 cents.
The company deserves applause for that.
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SERIAL SYSTEM: Every trading day, except for one, in the past four weeks, Serial Systems was buying back its shares.
In all, it has bought back 9.492 million shares so far (between May 15 and June 8).
Assuming an average price of 9 cents a share, the purchases cost about S$850,0000.
The buying had helped absorb market selling and pushed up the stock, which had closed at 10 cents the day before Serial started its share buyback.
Strong selling sent the stock down to below 9 cents in subsequent days as the euro crisis worsened. The buy back has raised the stock to 11.3 cents where it closed last Friday.
Prior to this, Serial chairman & CEO Derek Goh has also been a fervent buyer of the stock for over a year, in part because of the dividend yield of 6-9%.
The stock price looks undervalued compared to NRA Capital's fair value of 15 cents as stated in its recent report.
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