SM Investments approves P60B share buy-back

SM Investments [SM 765.00 ?1.9%] [link], the Sy Family’s holding company, announced that its board voted to approve a share buy-back program with up to P60 billion in purchasing power. As the associated press release notes, “This is the first buyback program in SM Investments’ corporate history.”  The President and CEO of SM, Frederic DyBuncio, said SM is currently valued “well below our history valuation multiples, which do not reflect the performance and future growth potential of the Group.” SM noted that it is currently trading with a price-to-earnings ratio of 11.5x based on FY24 earnings, and that this buyback program is meant to improve SM’s future earnings per share figures.

  MB BOTTOM-LINE:  The buyback program sounds massive, but it represents only about 6% of SM’s outstanding shares--SM is just such a huge company. For those who may be wondering, any SM shares purchased by SM’s buyback program would become treasury shares, and that can help increase SM’s earnings per share because treasury shares are not included as part of the outstanding shares calculation. Treasury shares still exist as something that the SM board could decide to sell back to the public in the future, but they’re treated as non-existent for voting and economic purposes. It’s just a simple matter of math that, all other things equal (like net income), reducing the number of outstanding shares through a buyback will increase the earnings per share. I’m not a huge fan of buybacks. I’m not a shareholder of SM, but if I were, as a long-term holder, I’d rather see the SM management team apply the P60 billion to some initiative that could grow the earnings per share by, well, you know, growing the earnings. Buybacks are valid, but they’re a defensive and uncreative allocation of capital. Is this the best use of shareholder money? That’s an open question. I mean, from a Sy Family member, it’s a great use of shareholder money, because it artificially inflates the value of their holdings and it gives a deep pool of artificial buying demand to catch any shares that might be sold. If we see a raft of share sales by insiders during this period, we’ll know what’s up.