Centum Investment Company has announced plans to spend up to Sh600.8 million on buying back a maximum of 66.5 million of its own shares in an effort to address its weak share price.
The firm's stock price has collapsed from highs of Sh80 in September 2014 to yesterday's closing price of Sh7.98, having touched a record low of Sh7.7 on November 24.
Centum's asset value per share stood at Sh59.8 per share in the six months ended September, implying an 86.6 percent undervaluation by investors trading its stock on the Nairobi Securities Exchange.
“We have had an engagement with the board on how best we should proceed. The board passed a resolution for approval for the buyback,’’ said Centum's chief executive James Mworia.
“The share buyback is expected to provide liquidity to shareholders who may not have been able to trade due to the current depressed market conditions. It will reward long term shareholders whose net asset value per share and dividend per share will improve as a result of the reduction in shares.”
The company will buy shares on the market at a maximum price of Sh9.03 per share
Share buybacks have the effect of reducing the volume of outstanding stock, potentially boosting the market valuation besides increasing the stakes of continuing shareholders.
The volume of stock that Centum intends to buy represents 10 percent of total issued shares.
This will be the second buyback after a similar programme by Nation Media Group that was completed in September last year.
NMG bought back 17.1 million of its ordinary shares at a price of Sh25 apiece, spending a total of Sh427.5 million in the transactions. The company had targeted to repurchase 20.74 million shares which represented 10 percent of issued shares at the time.
Centum says the share buybacks will be undertaken through on-market purchases at the NSE over a period of 18 months from the date of shareholder approval.
The buyback will be funded from sale of assets that are expected to close by its financial year ending March 2023 including sale of Sidian Bank to Access Bank Nigeria.
In June, Centum entered into a share purchase agreement to sell its entire 83 percent stake in Sidian Bank to Access Bank for Sh4.3 billion.
“We expect completion of the sale and receipt of funds within the second half of the current financial year. Upon conclusion of the transaction, Centum will recognise the gain on disposal achieved above the carrying value of the bank which is Sh2.7 billion,” Mr Mworia said.
Centum’s net loss widened to Sh1.55 billion in the six-month period to September compared to Sh243.6 million a year earlier, largely driven by unrealized foreign exchange losses.