Lucky Cement Limited (LUCK) is continuing on its merry way, buying back 168,000 of its own shares on Thursday. The company has been on a buyback spree since the start of October, and announced its latest haul to the PSX on Friday.
The buybacks are a part of a plan to get 10 million shares, the approval for which was given back in September this year through a special resolution passed at LUCK’s Extraordinary General Meeting (EGM). After the Thursday buyback, LUCK has bought back a total of 1,588,000 or 15.8% of its intended 10 million ordinary shares.
The share buyback period started on September 29 and will go on till March 27, 2023. LUCK expects the buyback to improve the Earnings Per Share (EPS) of the company.
Company background
Lucky Cement Limited was formed in 1993 and is the star company of the Yunus Brothers Group (YBG), one of the biggest business conglomerates in Pakistan. The YBF also has diversified interests in textiles, building materials, real estate, power generation, chemicals, pharmaceuticals, automobiles, electronics, FMCG, and philanthropy.
Lucky Cement is the largest producer of Cement in Pakistan and remains one of the country’s leading exporters of cement.
What are share buybacks
Share buybacks are one of the ways for companies to use their excess cash. As a previous Profit article mentioned, when a company has excess cash, it can choose to do five things with it:
- Spend it on capital expenditures
- Give dividends
- Keep it for a rainy day
- Buy other companies
- Buy back its own shares
Share buyback has been a popular way of using excess cash for public companies in more developed financial markets like the United States since the ‘80s. Companies normally do share buybacks when they want to increase the value of their shares in the stock market and their price and earnings ratios.
According to the first quarter report ending September of Financial Year 2023, LUCK had cash and bank balances of over RS 5.4 billion. This is ample cash reserves to buy back the full 10 m ordinary shares from the market in addition to the incoming cash the company will earn until March of next year when the share buyback period ends.
Share price
At the time of the buyback approval given in the EGM on September 20, LUCK was trading at Rs 492. The share price touched a high of Rs 517 on October 5th but since then, in spite of regular buybacks starting October 11th, the share price has only kept on falling.
At the time of closing on December 9th, LUCK was trading at Rs 453. This suggests that the market has not yet responded to the share buyback of LUCK. Nevertheless, since almost 85% of the share buyback is yet to happen, we might see LUCK rebound in the next few months.
