More firms mull share buy-backs to entice investors at the mart

Tuesday, January 11th, 2022 06:00 | By

More companies may undertake share buy-backs with some  listed firms hinting that their stocks could be grossly undervalued at the bourse.

Following a massive sell-off of shares on the Nairobi Securities Exchange (NSE) starting 2019, several listed firms mull share buy-backs to compensate their shareholders, following a prolonged drought of share appreciation.

Non-bank and non-telco stocks have remained guarded as risk averse investors force boards of companies to compensate shareholders to avoid more dumping but analsysts say Jubilee Insurance and Centum coming out as firms considering buying back shares to lift their stock prices.

In a note to CMA following its AGM last year Jubilee said: “The company may from time to time with the sanction of the special resolution from shareholder buy its own shares in accordance with the provisions of the capitals markets acts.”

Alykhan Satchu, CEO of Rich Management says buy-backs have a powerful signaling effect that the company has a strong conviction and tends to underwrite the price for a period of time.

Shareholder approval

“Typically a share buy back is undertaken where the company believes its share price is egregiously undervalued and in a price disequilibrium. Nation Media was a good example of that,” he said.

This has seen companies like Jubilee Insurance seek shareholder approval to buyback shares if the market conditions don improve.

However analysts fear that the share buy-backs could negatively impact on the liquidity of the companies by eroding their cashflows and retained earnings.

“News on Jubilee holdings preparing to buy back its shares will likely exert upward pressure on its share price, similar to what was observed in NMG,” said CMA licensed AIB-AXYS Africa and a member of the NSE.

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