What Is a Share Buyback?
A share buyback, also known as a share repurchase, is when a company buys back its own shares. This is typically done by the company itself and is usually listed in the annual agenda, requiring approval from shareholders at every Annual General Meeting (AGM).
For Example, Top Glove Corp Bhd Spent RM69.93 Million on a Share Buyback
As of 17 November, Top Glove carried out its latest share buyback, marking the fifth consecutive trading day of buybacks.
In this article, I will share with you about the glove manufacturing company, Top Glove. Top Glove was once the third-largest company on Bursa Malaysia.
Before we go any further, let us first get to know this company.
Top Glove is a company that manufactures and produces rubber gloves. The company falls under the healthcare sector. As you may know, apart from Top Glove, there are other companies that produce gloves too, such as Hartalega.
Since the COVID-19 pandemic hit the world in early 2020, glove manufacturing products have seen high demand both in Malaysia and globally. Many sectors and industries require these gloves.
Due to this pandemic, many investors seized the opportunity to invest in the affected sectors.
Additionally, several counters on Bursa Malaysia involved in the healthcare sector and glove manufacturing saw their share prices rise significantly.
What does a share buyback mean? Do you know what it means? Perhaps some of you do, and perhaps some do not. Let us take a look at its meaning.
A share buyback is also known as a share repurchase.
In simple terms, it means a company listed on the stock market buys back shares that it has floated. Usually, the management believes that the company''s shares are undervalued.
For your information, Top Glove has spent RM349.37 million so far this month. This amount is greater than its net profit of RM227.11 million for the first six months of its financial year ending 31 August 2020 (1HFY20).
This total exceeds the RM355 million allocated in September for share buybacks.
Overall, it has spent RM704.43 million buying back its shares since September, which means roughly 8.7 sen per share in cash if it had used the same amount for dividend payments based on its share capital of 8.12 billion shares.
There are several factors why Top Glove wanted to buy back its shares. Can you guess why Top Glove carried out this share buyback?
Here are the key factors:
1. To Increase EPS (Earnings Per Share)
One likely reason Top Glove bought back its shares is to increase its EPS. EPS is calculated by dividing the company''s earnings by the total number of outstanding shares.
When Top Glove buys back its own shares, the number of shares available to the public decreases.
Therefore, the company''s earnings are divided by a lower number of shares. This naturally increases their EPS.
2. Top Glove Had Excess Cash With No Better Use
Through a share buyback, the company returns value to its shareholders.
COVID-19 Vaccine
Top Glove''s share price surged since the COVID-19 pandemic as demand for gloves increased. However, news of a potential COVID-19 vaccine discovery caused Top Glove''s share price to decline somewhat.
This also affected other glove manufacturing companies such as Hartalega.
According to The News Edge, Top Glove''s shares fell by 7.46% or 58 sen, closing at RM7.20 on that day. It became the fourth most actively traded stock on the local exchange, with 79.76 million shares traded.
The company had a market capitalisation of RM59.01 billion at the time. Nevertheless, year-on-year, the stock was still up 359% from when it was trading at RM1.57.
Key Points to Note
There are several things you need to know about share buybacks.
A share buyback is most effective when the share price is low. Buying at a high price carries the risk of the share price declining over the following three months, which would have a negative impact.
Furthermore, the money used to buy shares comes from the company''s own funds. So, it will have some effect on the company''s finances.
Conclusion
In conclusion, there are pros and cons when a company decides to carry out a share buyback.
To date, Top Glove disclosed that it had purchased 9.57 million shares at prices between RM7.20 and RM7.51.
Net cumulative treasury shares stood at 95.25 million shares, equivalent to a 1.14% holding.
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