THERE are two distinct differences in Berjaya Corp Bhd’s (BCorp) share price movement soon after its CEO change announcement this time around and that of last year (during the appointment of its former group CEO Abdul Jalil Abdul Rasheed): (i) unlike previously, its share price did not rally; and (ii) ‘active’ indulgence of share buyback
While the company’s share buyback exercise has proven to be an effective stabiliser to reduce its share price volatility, BCorp does seemingly over-indulge in its share repurchases.
On Monday (March 21) when rumours abound about Abdul Jalil’s intention to step down as its group’s head honcho, BCorp share price has actually retreated to an intraday low of 21.5 sen.
This was when BCorp undertook a share buyback exercise entailing 9.33 million shares between 22 sen and 23.5 sen that cost RM2.14 mil (according to the company’s immediate shares buyback filing to Bursa Malaysia) to enable its stock to close only 1 sen or 4.17% lower at 23 sen with 44.23 million shares traded.
The following day (May 22) when BCorp unveiled the appointment of joint CEOs Vivienne Cheng Chi Fan and Syed Ali Shahul Hameed – both of whom are group veterans of 33 years and 25 years respectively – the company once again resorted to a share buyback exercise albeit at a more intense level.
This time around, BCorp paid RM5.94 mil to amass 26 million shares at the price between 22.5 sen and 23 sen which enabled BCorp to close unchanged at 23 sen with 56.99 million shares traded (intraday low was 22 sen).
Then unexpectedly again yesterday (May 23), BCorp mounted another share buyback between the prices of 22.5 sen and 23.5 sen to acquire 9.66 million shares for RM2.27 mil which subsequently enabled its stock to close 0.5 sen or 2.17% higher at 23.5 sen with 31.15 million shares traded.
It is not wrong for BCorp to have spent RM10.35 mil over the span of three market days to sustain its share price momentum judging from a recent report by the US Chamber of Commerce which found stock buybacks to have an overlooked beneficial effect on stock liquidity and stock volatility (degree of price movement).
By using a large sample of 10,000+ US companies over 17 years, the study – Corporate Liquidity Provision and Share Repurchase Programme – presents evidence that “managers (of public companies) strategically utilise share repurchases (stock buybacks) to increase stock liquidity and reduce volatility” and therefore stabilise stock prices, thus benefiting all investors (especially retail investors).
Probably, this is only a short-term measure pursued by the BCorp management given consistently doing so is not only a costly affair that is detrimental to the company’s finances but will also create misleading perception insofar as the BCorp share price strength is concerned.
At 11.05am, BCorp was down 0.5 sen or 2.13% at 23 sen with 2.49 million shares traded, thus valuing the company at RM1.25 bil. – March 24, 2022
