ISLAMABAD: Engro Corporation Limited (ENGRO) has started its massive 70 million share buyback, comprising approximately 12.1% of the total outstanding shares of the company. The company started the buy-back by purchasing 1,323,205 shares last week on Friday, and 891,646 shares on Monday, February 20th.
The board of directors (BoD) of the company made the decision to buy-back last year in December. Under the buy-back rules, any such decision by the BoD needs to be approved through a special resolution in the Extraordinary General Meeting (EGM) of the company. The EGM was held last month on January 26th where the members gave their approval to the company to officially start its buy-back.
The buy-back period started on February 3rd but the first transaction didn’t take place until February 17th. The purchase period is expected to go on till July 25th, 2023, or till the date the purchase of the 70 million shares is completed, whichever is earlier.
The shares will be purchased by ENGRO through the Pakistan Stock Exchange (PSX) at the current market price. The purpose of the buyback is cancellation of shares. The purchase of shares will be made in cash from the available distributable profits of the company. ENGRO expects that the purchase/buy-back of the company’s issued ordinary shares will improve the earnings per share of the company. Further, it will also provide an opportunity of exit to those shareholders who wish to liquidate their investments.
These buybacks are a form of payout by the companies to its shareholders. For buy-backs, companies typically use that cash which is available for distribution to its shareholders as dividends or to make other investments. Such buy-backs can help raise the break-up value of the shares and also raise the market prices of these shares as they signify a confidence by the sponsors in their companies.
History and financials
The principal activity of ENGRO is to manage investments in its various subsidiary companies, associated companies and joint venture companies, which are engaged in fertilizers, power generation, telecommunications infrastructure, petrochemicals, mining, food, LNG and chemical storages.
Engro has a market capitalization of Rs 172.8 billion which is calculated as the total number of outstanding shares of the company multiplied by the current market price. ENGRO has total outstanding shares of 576,163,230 while the current market price as of February 21st is Rs 299.94.
The 70 million shares to be bought back make up approximately 12.15% of these total issued shares of the company. The total free float shares, currently available in the market for trading, are 55% or 316,889,777 shares. The buyback, when it is completed, will reduce the free float shares of the company by 22% to 246,889,777 shares.
The new total outstanding shares of the company after the 70 million buy-back will be 506,163,230. The new free float shares of the company will be 48.7%, down from a previous 55%.
In the last financial year ending December 2022, ENGRO’s revenue increased 14% to Rs 356.4 billion. However, it reported a Profit After Tax (PAT) of Rs 46 billion, down 11% on a yearly basis. Its Earnings Per Share (EPS) was Rs 42.23, down from Rs 48.50 last year.
Other buybacks
In 2022, six major companies on the PSX announced share buybacks. The uncertain economic situation in Pakistan reduced the share prices of many profitable and established companies which made their valuations attractive. Due to a lack of institutional and foreign investors in the market, these companies decided to take advantage of the decline in their share prices to buy back their shares.
It started with NETSOL in May (two million shares), followed by Maple Leaf Cement (25 million shares), then Lucky Cement (10 million shares), JDW Sugar Mills (two million shares), then BAFL (200 million shares), and finally ENGRO (70 million shares). The ENGRO buy-back is the latest ongoing buy-back.
In 2023 so far, we have seen two buy-back announcements: Kohat Cement Company Limited (KOHC) followed by Kohinoor Textile Mills Limited (KTML).
We wrote a featured piece for Profit magazine at the end of last year titled ‘2022: the year of share buybacks’. The article predicted that “it might even be the case that the buybacks have only just started, and next year in 2023 we may see even more buybacks than the ones we saw in 2022. Time will tell.”
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