A share buy-back is when a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This increases earnings per share and tends to enhance the market value of the remaining shares.
Analysts say what is clear is that none of the share buy-backs on the ZSE (except Econet’s) is backed by a strong cash position by the companies in question. They say the motivation seems to be driven by the desire to reward shareholders or clean up the share register of odd lots.
Two weeks ago, banking group CBZ told its annual general meeting that their share buy-back was mainly to put in place to consolidate the share register and for its employee share option scheme.
However, some of the companies pursue aggressive share grant schemes for management on the other opening the schemes to substantial scope for abuse. At its annual general meeting last week Edgars cancelled its share buy-back, citing current liquidity challenges that the group was currently facing.
Edgars was seeking authority to have a share buy-back at a price which would have been 25% above or below the respective weighted average of the market price at which such ordinary shares are traded on the ZSE as determined over the five business days immediately preceding the date of repurchase of such ordinary shares by the company.
However, the listing rules say that any share buy backs should not be done at a price which is above 5% of the weighted average of the market price. Meanwhile in a trading update, Edgars turnover in the four months to April grew 30% against the comparable period, chief executive Linda Masterson said. She said the group was trading within budget, with the month of May expected to all meet the set targets.
Gross margins were steady, with the bottom-line now above the same period last year and the growth well above the topline. Bad debts were now at 0.4% from the December year amount while collections had grown 22%. Masterson said though there had been concern over the debtors’ book across the concern, Edgars’ book had shown no signs of deterioration. There had been a 5% growth in accounts in the year to date.
Borrowings had gone down 7% from US$14,15m in December while finance costs were down 14%, which Masterson said had assisted in boosting the bottom-line. The group was currently in negotiations to improve the rates and tenure on the borrowings.
— Staff Writer.