Engro Corporation Limited (ENGRO) has initiated its mammoth 70 million share buyback, totalling about 12.1% of the total outstanding shares of the business. The corporation 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 corporation made the decision to buyback last year in December. Under the buy-back laws, any such action by the BoD needs to be approved by a special resolution in the Extraordinary General Meeting (EGM) of the firm. The EGM was held last month on January 26th where the members gave their assent to the corporation to officially launch 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 run on to July 25th, 2023, or till the date the purchase of the 70 million shares is completed, whichever is earlier.
The shares would be purchased by ENGRO through the Pakistan Stock Exchange (PSX) at the prevailing market price. The goal of the repurchase is cancellation of shares. The purchase of shares will be performed in cash from the available distributable profits of the company. ENGRO estimates that the purchase/buy-back of the firm’s issued ordinary shares will boost the earnings per share of the company. Further, it will also provide an opportunity of exit to those shareholders who desire to liquidate their investments.
These buybacks are a sort of compensation by the companies to its shareholders. For buy-backs, firms normally use that cash which is available for distribution to its shareholders as dividends or to make other investments. Such buy-backs can help enhance the break-up value of the shares and also raise the market prices of these shares since they signal a confidence by the sponsors in their companies.
The major activity of ENGRO is to manage investments in its many subsidiary firms, related companies and joint venture companies, which are engaged in fertilisers, power generation, telecommunications infrastructure, petrochemicals, mining, food, LNG and chemical storages.
Engro has a market value of Rs 172.8 billion which is calculated as the total number of outstanding shares of the firm 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 purchased back make up approximately 12.15% of these total issued shares of the corporation. The total free float shares, now available in the market for trade, are 55% or 316,889,777 shares. The buyback, when it is completed, will reduce the free float shares of the corporation by 22% to 246,889,777 shares.
The new total outstanding shares of the corporation following the 70 million buy-back will be 506,163,230. The new free float shares of the corporation will be 48.7%, down from a previous 55%.
In the last financial year that ended in December 2022, ENGRO’s revenue climbed 14% to Rs 356.4 billion. Nonetheless, it declared 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.