KARACHI: The share price of Kohat Cement Company Ltd (KCCL) increased on Tuesday by 7.5 per cent, maximum allowed in a day, after it made an announcement about its upcoming share buyback exercise.

KCCL told investors on Tuesday it wants to buy back up to five million of its shares from the stock market at the prevailing price for the purpose of cancellation.

The move is aimed at improving the earnings per share of the company, it said.

Of late, many listed companies have carried out share repurchase exercises in the ready market. The total number of shares goes down once a company conducts a buyback, leading to an increase in its break-up value — the amount that the company would be worth if it was liquidated. The transaction would be worth Rs669 million at the current share price of Rs133.78. The targeted volume constitutes 2.49pc of the company’s total outstanding shares.

KCCL will start buying back its shares on March 1 and keep repurchasing the stocks until August 19 or the date when the targeted volume is achieved. At the conclusion of the buyback exercise, the company’s free float — shares that’re available for the public to buy and sell — will have gone down from 30pc to 27.5pc.

The cement maker will use the cash from its “distributable profits/reserves” to repurchase shares at the price prevailing on the stock exchange during the purchase period. “It will provide an opportunity of exit to those members who wish to liquidate their investments,” it said.

Other companies that have either conducted or are still exercising share buybacks are Engro Corporation, Lucky Cement Ltd, Maple Leaf Cement Factory Ltd, Netsol Technologies Ltd, Bank Alfalah Ltd and TRG Pakistan Ltd. A share buyback is usually an indication that the company likes its own stock enough to buy it back.

Companies buy back their stocks to either cancel them altogether or hold them as treasury shares. Both moves result in the reduction of the number of outstanding shares available in the open market.

Some analysts believe the reduction in the volume of tradeable shares is bad for the stock market. Others say the exercise provides investors with a higher share price to liquidate their investments in an otherwise bear market.

Published in Dawn, January 25th, 2023