Letshego bounces back on share buyback
Pauline Dikuelo | Wednesday September 14, 2016 18:00
Last week Letshego bought 13 million of its shares under a share buyback scheme that allows it to buy up to 218 million shares, which is equivalent to five percent of its total issued shares.
This saw the counter gaining three percent in the week reducing its year-to-date losses to -28%.
The share buyback was implemented to induce some demand for Letshego shares on the bourse after the counter incurred the heaviest losses on the Botswana Stock Exchange (BSE) on a year-to-date basis. An analyst at Motswedi Securities, Gary Juma said the share buyback will enable Letshego to take advantage of the undervaluation of its share price by repurchasing some of its shares at this reduced price and then re-issue them once the market has corrected, thereby increasing its equity capital without issuing any additional shares.
In addition, he said this would improve investor perception, noting that the act of Letshego acquiring its own shares without reissuing the shares is a signal to investors that Letshego has excess capital.
“This is therefore attractive to other investors that they should invest in Letshego which could further improve the price of the shares in the mid to long term,” he said.
Under the Share Buyback Mandate, Letshego is allowed to buy back up to 218.4 million shares on the BSE for an amount which shall not exceed the sum of retained profits of the company based on its latest financial statement of the company, nor a monetary value of P561.5 million in total.
Investment analyst at Afena Capital, Kwebena Antwi said share buybacks are usually pursued when management of a company perceives that the shares of the company are undervalued or as a means of distributing earnings back to shareholders.
“It is a signal that the management of Letshego believe(s) that Letshego has excess capital,” he said.
Meanwhile, the benchmark Domestic Companies Index (DCI) edged up for a second week in a row, climbing to 9,615.58 and reducing the year-to-date losses to 9.31%.
Last week, over 30.7 million shares worth P78.5 million exchanged hands, with Letshego, Choppies, PrimeTime, Engen and Sechaba, trading the most stocks.
Analysts at Motswedi Securities say the market seems to be warming up with the return of more institutional investors following the release of good financial results from most listed companies.
“Barclays Bank of Botswana and Choppies are some of the heavy weights that are still to release their results, with the former having released an exciting trading update so far,” said the analysts.
Engen was the biggest mover leaping 9.8% higher to close the week trading at P9.20 a share.
Barclays Bank, which is due to announce its results tomorrow, released a second positive cautionary announcing that profits for the first half of the year will be significantly better than the same period last year.
Demand for the stock has been high since the beginning of the year, however the good news has led to bigger price moves.
The Barclays share price moved by five thebe this week to close at P4.81, 6.9% higher since the beginning of the year.