Why are Big Corporations like SM, Jollibee and Ayala, BUYING their OWN STOCK?
The reason behind big corporations like SM, Jollibee, and Ayala Land buying their own stock after seeing their stocks drop to their lowest levels in 15 years.
Something big is happening in the Philippine stock market right now and you should be aware of it.
SM Investments Corp. (SMIC) just launched the largest buyback program in Philippine corporate history.
They just bought ₱60 billion worth of their own shares.
Their CEO Frederic DyBuncio said they are trading “well below” what their company is actually worth!
Ayala Land is doing the same thing. The Zobel family-led property giant completed a multi-year ₱28 billion buyback program Q1 of this year. Then on the next quarter, they approved a new ₱10 billion buyback program.
Jollibee, flush with cash from record profits, repurchasing ₱3 billion worth of preferred shares as part of a capital management strategy.
Three of the biggest, most powerful companies in the Philippines. All making deliberate moves to buy back their own paper.
All at the same time.
That is not a coincidence. That is a signal.
And why should you care?
First of all, these corporations have entire floors of analysts, economists, and financial experts whose only job is to read where things are going. They are not guessing. They are calculating. And when companies of this size start spending billions to buy their own stock, they are essentially placing a massive bet on themselves and in a way..they’re also placing a bet on the country and it’s capacity to bounce back from our economical slump.
You may not be a stockholder. You may not even care about the PSE. But if you run a business; the smartest thing you can do right now is stop listening to what these corporations are saying and start watching what they are doing.
That will tell you more about where the Philippine economy is headed than any press release ever will.
What Is a Stock Buyback?
Before we go deeper, let’s make sure we’re on the same page.
A stock buyback is when a company goes to the stock market and buys back the shares it previously sold to the public. Using its own cash.
Think of it this way:
Imagine you own a small bakery. Years ago, you sold 10 slices of your bread to 10 different customers. Each slice represents a piece of ownership. Now, you saw some of those customer selling the slices they bought for cheaper than you sold it for. If you think they’re under selling those slices, you buy some of those back.
You now own a bigger piece of your that bread. And the people who still hold slices? Their piece just became more valuable because there are fewer slices in circulation.
That is exactly what SM, Ayala Land, and Jollibee are doing at a scale of billions of pesos.
Why Do Companies Do Buybacks?
One: They think their stock is underpriced.
This is the most common reason. When a company’s leadership looks at the market and says “that price does not reflect what we are actually worth”.
Two: They have excess cash and no better place to put it.
Companies only do buybacks when they can afford to. This means their core business is healthy enough to generate more cash than they currently need for operations and expansion.
This could also mean that they’re not confident with where the economy is at right now. Instead of using their money for expansion, growth, or acquisitions they’d rather get a bigger slice of the bread.
In short, it’s a safe bet.
Three: It’s a PR move.
When the biggest conglomerates in the country start spending at this scale, every investor, analyst, and economist needs to answer the 2 questions: Is their stock really undervalued right now? Or are they playing mind games with me, persuading me to buy their stock right now, even though it could still dive deeper to historic lows?
What This Says About the Philippine Economy Right Now
The Philippine Stock Exchange index has been underperforming.
Foreign investors have been pulling money out of emerging markets like the Philippines and moving it to safer, more stable economies. The peso is at its weakest in history. And consumer confidence, is at an all time low.
In other words, the market is not exactly in party mode right now.
So is the market crash coming? Probably not.
The same corporations that operate inside this economy are spending billions of their own cash to double down on themselves. That means if the market crash tomorrow they’d be left with slices of bread that’s not worth consuming anymore.
Saying that the market crash is coming is like saying “Jollibee, SM, and Ayala are going bankrupt tomorrow”.
Bit of an exaggeration but you get the point.
Analysts noted that SM’s buyback signals strong conviction that its shares are trading at a significant discount to fair value because market sentiment has been weak.
There is a difference between a bad business and a good business in a bad mood market.