Thursday, October 22, 2020

Letshego’s share-buy-back strategy pays off

Letshego, as indicated in the third quarter economic bulletin by Motswedi Securities, saw a return on a decision it took earlier in September of issuing a share buy-back following episodes of plunging share price despite its positive financial results.    

A share buy-back is defined as a process in which a company buys its own shares held by all its shareholders so as to reduce its stake in the open market. One of the other reasons cited for a share buy-back is to increase the value of shares by reducing their supply, which when taking the decision was what Letshego hoped to achieve. 

Letshego Group Managing Director Chris Low in an earlier interview said the decision would be based on whether there was liquidity in the market. The company was of the view that its share was undervalued in the market. “We are disappointed with the share price this year,” said Low at the time. He had also described the repurchase process as quite strict as it follows the Botswana Stock Exchange’s compliancy procedures. 

Letshego’s recent financial results indicate that the company recorded a flat profit growth, which declined by 4 percent in comparison to the corresponding period in 2015. 

However, observing a trend on its past financial results shows a buoyant performance. The bulletin also alludes to the company’s upbeat past results. Letshego’s third quarter performance on the stock exchange is described in the bulletin as having been turbulent. On the six top losers that struggled to keep afloat indicated in the bulletin Letshego comes at the fifth position. At number one is BTCL and in the last position is Stanchart.  

The bulletin details the events leading to the management’s decision to repurchase its shares citing that “the stock price plummeted to its lowest price in over five years in August of P1.80 a share. This followed a massive international sell-off on the counter which quickly flooded the market. The relentless sell-off puzzled many as the company has not been underperforming by any measure.” It mentions that Letshego had announced to buy back at least 10 percent of its listed shares. Following the repurchase, Motswedi reports that “the stock price recovered considerably from there, climbing up to P2.37 a share by September 29, having reduced the quarterly deficit to just under 5 percent, from 25 percent at the lowest point”. 

One other company share that has been struggling as detailed in the bulletin is BTCL. “The share price has been under pressure from a large sell-off and profit-taking by speculative traders who were initially excited by the IPO. However, a reported loss for the period March 31, 2016, saw the newly listed stock experience a new wave of sellers and a drastic drop in price. The stock price fell by 22 percent to close the quarter at its current price of 85 Thebe a share,” cites the bulletin. 

BTCL’s saving grace, as explained in the bulletin, came from it engaging a market maker who addressed the influx of shares by improving liquidity. The market maker, also known as the buyer of last resort, was according to the bulletin able to mop up the excess shares in the market to stabilise the price and the stock has been trading at 85 Thebe since August 18, 2016. 

Contrary to the top losers, the bulletin also highlights the major winners. These include Engen at number one as its stock price rose from P8.00 to P9.20, followed by Lucara and then Cresta. G4S and Barclays come at second last and last positions respectively. 

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