Crown Paints #ticker:BERG could become the first company in the country to buy back its own shares after the Nairobi Securities Exchange #ticker:NSE -listed firm proposed to spend hundreds of millions of shillings to acquire 10.6 million units of its stock in the near term.
The share buyback plan is among the resolutions that will require shareholders’ approval at the annual general meeting coming Tuesday.
The new Companies Act allows firms to buy their own shares, with Crown becoming the first listed company to propose a definite plan to execute such a transaction.
“The company be and is hereby authorised to purchase a maximum of 10,677,150 ordinary shares representing up to 15 per cent of the company’s current issued share capital as quoted on the Nairobi Securities Exchange,” Crown says in its AGM notice.
Share buybacks are common in the Western markets where they are ideally implemented at a time when companies believe their stock is trading at a big discount to their intrinsic value.
Companies typically buy back shares when they have idle cash. Share buybacks have also been controversial, with some firms implementing the trades to help executives cash in their stock options at a profit.
Crown intends to buy the shares, which have a current market value of Sh608.5 million, over the period ending December 2018.
The company will likely pay a major premium in the transactions, with its stock currently one of the most expensive counters on the NSE.
Based on the last price of Sh57 per share, Crown is trading at a price-to-earnings ratio of 30.7 times, trouncing Safaricom’s #ticker:SCOM 19.4 times.
Crown, however, says it believes the transactions will be positive for shareholders in several ways including cashing out those who wish to exit and boosting the stakes of continuing shareholders as the outstanding shares reduce.
The paints manufacturer says it could also become a trader in its own shares, buying and selling its stock in the open market.