Engro Corporation to buy back 70m shares

KARACHI:

Engro Corporation Limited, on Thursday, announced that it would be buying back 70 million of its own shares at an estimated cost of Rs20 billion next year in a bid to strengthen the company’s valuations and improve profitability amid the ongoing macroeconomic crisis in Pakistan.

Other entities buying back stocks at the Pakistan Stock Exchange (PSX) these days include Bank Alfalah, Lucky Cement and MCB Bank. Speaking to The Express Tribune, Ismail Iqbal Securities Head of Research Fahad Rauf said, “A number of companies have surplus funds. The ongoing economic and political crises, however, does not allow them to establish new businesses or expand their existing ones.”

Accordingly, they are utilising those funds to buy back shares that have suffered a steep price fall coming to what are considered ‘attractive levels’ these days. The exercise will not only improve the companies’ stock prices and valuations, it will also increase their share in the total profit to be earned. Engro Crop’s share price increased 2.86% (or Rs7.70) to close at Rs276.72 with a volume of 3.45 million shares in a bear-dominated market.

PSX benchmark KSE 100 Index dived 1.34% (or by 558 points) to close at a six-week low of 41,180 points on Thursday.

As the market has continued to fall for the past 18 months, the subsequent economic and political crises have pushed stock prices, of a majority of companies listed at the PSX, even further to so-called ‘attractive levels (lows)’. The market has continued to trade below the 18-month high of 46,633 points, hit in the mid of June 2021.

KASB Securities Managing Director, Saad Bin Ahmed told the Express Tribune that, “General investors are not buying the ‘attractive’ stocks due to a loss of confidence in the economy. The buyback also motivates investors.”

He added that the buyback is also a good investment option for the utilisation of the surplus funds given the challenging business environment.

“The buyback will increase their (companies) share in the pie (total profit) at times when the deepened economic crisis does not allow them to initiate new projects or expand their existing ones to increase earnings and achieve profitability,” he said. He said the multi-decade high rate of inflation, coupled with the central bank’s key policy rate (cost of borrowing), does not support businesspeople initiating new projects – especially while “speculations suggest the country is heading towards a likely default,” he said.

Topline Securities CEO, Muhammad Sohail, estimated the value of Engro Corp’s buyback transaction (of 70 million shares) at Rs20 billion, considering its share price closed at Rs276.72 at PSX on Thursday.

The corporation, in its notification to the PSX, said it would buy the stocks between February 03, 2023, to July 25, 2023, (both days inclusive) or until such date that the purchase is complete, whichever is earlier.

The shares will be bought back at the prevailing price during trade at PSX. The purchased shares will stand cancelled, meaning they will not be resold in the market in the future.

“The purchase of shares shall be made in cash and shall be out of the distributable profits…,” reads the notice.

“The purchase/buy-back of the Company’s issued ordinary shares will improve the earnings per share (EPS) of the company.”

“Further, it will provide an opportunity of exit to those members who wish to liquidate their investments,” added the PSX notification.

Published in The Express Tribune, December 16^th, 2022.

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