Friday 3 April 2020

Two Companies Doing Share Buybacks During the Covid Crisis

The Covid 19 Crisis has caused valuation of companies to plummet. For companies, it is an opportunity to back their own shares at low valuation to increase shareholders value.

However one downside of a share buyback is that it depletes your cash reserves, cash reserves act as buffer to protect you during a downturn. During this crisis, we have seen airlines and cruise operators suspend buybacks and dividends in order to preserve cash to survive. Many corporations such as HSBC and DBS has not done share buy backs consistently despite the low prices, in order to conserve their cash. 

To me, the fact that these 2 companies have been buying back shares daily shows they have excess cash reserve to protect their operations and at the same time, is using this opportunity to increase shareholder value.

The 2 Companies

Both are listed on the SGX- Silverlake Axis and China Sunsine Chemical

I have covered Silverlake Axis quite extensively, you can find it here. Basically, it is a software company which provides its core banking software to run its operations. As far as I know, it is providing services to OCBC, UOB, Malaysia Banks and some of Thailand Banks. Its competitor is Infosys; DBS is using Infosys's core banking software. Silverlake's Cash flow generation ability is exceptional

The other is China Sunsine who is the largest supplier to rubber tyre makers globally. As far as I can recall, about 50% of tyre makers raw materials come from China Sunsine. Again China Sunsine's Cash flow generation ability is exceptional.

Share Buyback

A picture says a thousand words just look at how frequent their share buybacks are!

 Silverlake Axis- Share buyback Since 10 March 2020

     China Sunsine- Share buyback Since 9 March 2020

Currently both companies have dividend yields above 5%. To me, I feel there is a margin of safety in investing in them now

<Author is Invested in Silverlake Axis>

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