The share price of the colossal microfinance firm, Letshego Holdings Limited accelerated 17 percent. Market watchers say the company’s ongoing ‘share buyback plan’ may have excited investors.
By close of business on Wednesday, shares of the blue-chip institution sold at P2.37 each, a 17 percent leap from the P2.03 value per share seen about a month ago.
Analysts have hinted that the company’s buyback plan could have excited the micro lender’s share price performance.
Letshego this week announced that it had exercised its power under the general mandate to buyback, on market, a total of 52,782,546 shares, representing approximately 2.41 percent of the issued share capital of the company.
Pursuant to the share buy-back mandate, the company is allowed to buy-back up to 218,490,166 shares on the Botswana Stock Exchange (BSE) for an amount which shall not exceed the sum of retained profits of the company, based on its latest financial statement, nor a monetary value of P 561,519,726 in total.
The share buyback, Letshego said, was implemented in accordance with all applicable regulations and conditions the board is subject to. Observers expressed optimism that the process would eventually improve the performance of Letshego’s share price, which was sitting at P2.02 more than a month ago.
During Letshego’s six months ended 30th June financial results, the Group Managing Director (MD) Chris Low, evidently disappointed by share performance, decried the undervalued share price. Low revealed that the group would approach stock brokers to discuss the possibility of issuing a share buyback, despite lamenting the complexity of processes based on BSE compliancy procedures.
Analysts who observed the “dramatic” fall of share price blamed institutional investors who were offloading shares in the absence of buyers. Garry Juma, Head of Research at Motswedi Securities said it was more or less a “sellers’ market”. Juma said the buyback would eventually make the share price to appreciate which would improve the lender’s return on equity.
Since Letshego posted over a P1billion in gross profit in June, and revealed intentions to buy back share, the company’s share price has been on an upward trajectory. On Wednesday the share price was pegged at P2.37, about 17 percent leap from where it stood before the share buyback was announced.
Though Juma could not attribute the appreciation entirely to the share buyback he said the process has enabled Letshego to extinguish excess shares in the market. “There are many reasons why a company can buy back shares: if its shares do not reflect the real value of the company or improve efficiency of the balance sheet,” he said adding that the latter is induced by reduced sharing amongst shareholders. “Fundamentals remain the same, we never expected a dramatic fall in share price,” he added. The lowest share price Letshego ever recorded in the past 12 months is P1. 80, while its 12 month-high was P3.10.
During the buy back, Letshego said the highest purchase price per share was P2.37, lowest purchase price per share at P2.04 while the average purchase price was approximately P2.26. The aggregate consideration for the buy-back of shares was P120, 247,258, the board said.
The buyback stipulates that Letshego cannot purchase shares from individuals or entities (or their associates) that hold more than 5 percent of the ordinary shares in issue. The Company also cannot purchase shares from directors, management or staff of the company or its subsidiaries. Further, Letshego can only trade in its shares when it is not in a closed period.
The Board believes that the company’s solid financial position will enable it to conduct the share buy-back while maintaining sufficient resources for the continued growth of the company’s and group’s operations.
Meanwhile, the group’s MD has revealed intentions to list its Namibian subsidiary which recently received a banking licence on the Namibian Stock Exchange. The lender said it is still considering two options in accordance with Namibia Central Bank’s New Equitable Economic Empowerment Framework (NEEEF). The central bank has been a strong advocate for the listing of financial institutions to allow greater participation by the general public in their ownership structures, according to Namibian media. This means that, for Letshego to list, it either has to identify a local company to partner with or give up some of its shares.
However, Juma said Letshego has been issuing shares only to amass capital to fund its expansions. At the moment, he said, the company might find the need to consolidate themselves as he fears there might be a decline of opportunities. “They need to preserve capital they have, if they need more money they can borrow from Banks,” he said.