Engro Corporation Limited said on Thursday that it will repurchase 70 million of its own shares at an anticipated cost of Rs20 billion in order to reinforce the company’s values and increase profitability in the midst of Pakistan’s current socioeconomic crisis.
Bank Alfalah, Lucky Cement, and MCB Bank are among the other corporations repurchasing shares at the Pakistan Stock Exchange (PSX) currently. Fahad Rauf, the head of research at Ismail Iqbal Securities, stated, “A number of corporations have excess funds. However, the persistent economic and political challenges prevent them from establishing new firms or expanding existing ones.
Consequently, they are employing these money to repurchase shares that have experienced a dramatic price decline and are now regarded “attractive” The exercise will raise not only the stock prices and valuations of the companies, but also their portion of the total profit to be achieved. In a bear-dominated market, Engro Crop’s share price rose 2.86 percent, or Rs7.70, to settle at Rs276.72 on volume of 3.45 million shares.
On Thursday, the PSX benchmark KSE 100 Index fell 1.34 percent, or 558 points, to a six-week low of 41,180 points.
As the market has continued to decline for the past 18 months, the accompanying economic and political issues have pushed the majority of PSX-listed companies’ stock prices to so-called ‘attractive levels’ The market has continued to trade below the 18-month peak of 46,633 points that was reached in mid-June 2021.
Saad Bin Ahmed, managing director of KASB Securities, stated, “General investors are not purchasing ‘attractive’ companies due to a lack of faith in the economy. Additionally, the buyback drives investors.”
Given the current business climate, he emphasised that buybacks are also an excellent investment choice for the use of excess cash.
“The buyback will increase their (companies’) share of the pie (total profit) at a time when the deepening economic crisis prevents them from initiating new projects or expanding existing ones to boost earnings and achieve profitability,” he explained. He stated that the multi-decade high rate of inflation and the central bank’s key policy rate (cost of borrowing) discourage entrepreneurs from launching new projects, especially as “speculations suggest the country is heading toward a probable default.”
Muhammad Sohail, CEO of Topline Securities, estimated the value of Engro Corp’s repurchase transaction (70 million shares) to be Rs20 billion, given that its share price closed on Thursday at Rs276.77.
In its statement to the PSX, the company stated that it would purchase the shares between February 3, 2023 and July 25, 2023 (both dates inclusive) or until the purchase is completed, whichever comes first.
The shares will be repurchased at the PSX’s current market price. The purchased shares will be cancelled, which means they cannot be resold in the future.
The announcement states, “The purchase of shares shall be made in cash and from distributable profits…”
“The purchase/buyback of the Company’s issued common shares will increase the company’s earnings per share (EPS).”
“Additionally, it will allow members who wish to liquidate their investments to do so,” the PSX statement stated.