Share Buy back - what does that mean for me?

I have shares in Cairn homes on Degiro.
Current price is 1.338 and I have less than 2000 shares.

I read this article that they intend a buy back:


What does that actually mean for me?
The offered price in the article is less than the market price.
Will the buyback be mandatory?

They'll just buy shares in the market and cancel them as far as I'm aware, leaving less shares available.

Where did you see a price? That's the average price that they bought back shares at last year if I'm looking at the same figure as you?

Yes.. I misread that. It was last year!
Ok.. so its not a buy back from me then.

When a company considers that it has excess capital, it often gets the approval of shareholders to buy back some shares with that excess capital.

They would usually buy back in the market. So they are just like any other buyer. You don't need to sell if you don't want to.

Occasionally a company has so much excess capital that it makes a formal offer to buy back shares in excess of the market price e.g. it will buy back one share for every 20 shares a shareholder owns.

Here is an example.

Hello,

We've seen a few high profile companies buy back shares from the market over the last year or so... but, is a share buy back a good, or a bad thing?

At one level, it appears a positive given the company has more cash then it needs, and by buying back & cancelling shares, in theory it's enhancing the value of the remaining shares in issue.

However, on the other hand, it can imply that the Board of the company are unable to find suitable purpose for its cash, that will generate an acceptable return on capital for the shareholders, and so, they give the cash back to the shareholders.

Personally, I tend to subscribe to the later, more negative point of view, in most share buy back scenarios.

What do other people think, and why, please?

I always thought that all buyback of shares are not necessarily cancelled but sometimes held in Treasury?

@MrEarl
Out of interest, do you have the same view on any company paying dividends?
It's difficult to get into to much discussion without talking about specific shares.

Interestingly, Warren Buffett adds the view that a company should only buy back shares where the management believe their shares are undervalued by the market. If you look at some of the big tech companies, their share buybacks are pushing prices higher, and you'd wonder are they actually returning value to shareholders.

Odea said:

I always thought that all buyback of shares are not necessarily cancelled but sometimes held in Treasury?

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Yes, you are absolutely correct. In some cases they remain issued, but not outstanding.
In the case of Cairn homes they are all cancelled (or at least have been to date).

RedOnion said:

@MrEarl
Out of interest, do you have the same view on any company paying dividends?
It's difficult to get into to much discussion without talking about specific shares.

Interestingly, Warren Buffett adds the view that a company should only buy back shares where the management believe their shares are undervalued by the market. If you look at some of the big tech companies, their share buybacks are pushing prices higher, and you'd wonder are they actually returning value to shareholders.

Click to expand...

Hello,

My views on Dividends are somewhat different, while I appreciate why you are asking.

As I write this post, I actually find myself struggling a little, to explain exactly why, not least because I'm good with capital gains from share price growth, along with dividends.

I think that for me, it could be down to how the company trades over the long term. For value stocks, I like companies to have continued modest growth, year on year, with annual earnings split between further investment and annual distribution to shareholders, by way of dividend. Each year's reinvestment of partial earnings expected to later increase the company's earnings further and by extension, the capital value of the company.

As for my old friend Warren, who's views I respect the large majority of the time that I hear them, I don't agree with his reckoning on this one. I believe that markets are efficient and that they price shares correctly, quickly adjusting prices as new information becomes publically available etc.

Management often have conflicts of interest, so should they be allowed tamper with a company's share price via share buybacks?

RedOnion said:

.... didn't cash it because the charges were too high on GBP cheque. I've a similar issue with the value of shares Vs transaction costs to sell them.

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Putting aside the unfortunite demise of the company that you've mentioned, DRIP schemes are often the better option, for those with modest holdings in foreign currency shares (where a DRIP scheme is available, obviously).