A 23 percent jump in Centum’s share price in the last three months to Sh11.90 per unit is denying the company an opportunity to continue buying back its stock from investors under a programme whose execution price was capped at Sh9.51.
Centum is now trading at a two-year high, having rallied over the last three weeks amid a general rise in share prices at the Nairobi Securities Exchange (NSE).
Share buybacks have the effect of reducing the volume of outstanding stock, potentially boosting the market valuation besides increasing the relative stakes for shareholders.
Centum went the buyback route after deeming its shares to be undervalued at the NSE for years in relation to its net assets which stood at Sh63 per share as of September 2024.
The company carried out an initial share buyback between February 2023 and September 2024, before extending it under enhanced terms to run until March 31, 2026 after failing to hit its target of clawing back 10 percent of its 665.4 million issued shares into treasury shares.
By the time the new buyback was announced on September 4, 2024, the stock had been trading at a weighted average price of Sh8.64 over the preceding 30 days. The maximum buyback price of Sh9.51 therefore represented a premium of 10 percent on that average price.
The share however gradually appreciated after the announcement was made, and by the time the buyback formally opened on October 1 after shareholder approval, it was trading at a low of Sh9.40 and a maximum of Sh10.40.
The minimum purchase price of the shares remains Sh0.50, which is also the stock’s nominal value.
In the first phase of the buyback, Centum acquired 9.85 million shares, representing 14.8 percent of the target of 66.54 million shares. In that phase, the Centum shares traded in a range of Sh7.88 and Sh9.50, averaging about Sh8.73 per unit over the period.
In the second phase, the company is targeting a total of 65.56 million shares, which is 10 percent of its issued shares less the ones already in its possession from the first buyback.
Centum’s latest shareholder filings as at December 31, 2024 show that the treasury shares account held 10.84 million shares, meaning that the second phase of the buyback has so far raised 995,000 shares (1.5 percent of its target).
The company blamed the sub-par valuation in the market on several factors including investors’ perception of high risk from its previous debt-fueled expansion, an issue it has been addressing by steadily repaying more loans.
Under the terms of the buyback, the Centum board retains a right to terminate the buyback if it is no longer deemed to be in the best interest of the company, changes in economic and market conditions and the incidence of a material change in the firm’s financial position.
