Bearish market good for treasury stock
When the stock market is bearish or the economic outlook has high uncertainty, treasury stock remains a popular alternative for listed companies to manage cash and improve financial ratios.
Treasury stock is the portion of shares that a company keeps in its own treasury. This may have come as part of the float and shares outstanding before being repurchased by the company or may have never been issued to the public at all.
When a business buys back its own shares, the shares become treasury stock and are decommissioned. Treasury stock has little value because it does not confer voting rights and does not pay any distributions.
Organisations could benefit from limiting outside ownership. Reacquiring stock also helps raise the share price, providing investors with an immediate reward.
As of May 19, some 35 SET-listed companies have announced treasury stock programmes this year, according to the Stock Exchange of Thailand.
The number excludes three major listed companies (Siam Commercial Bank, SPCG and True Corporation). SCB cancelled, saying the bank wanted to be prepared to help its customers during the crisis.
Just three of the 35 companies will reacquire stock through the general offering method from shareholders, with the rest to reacquire shares from the stock market mechanism.
"Normally treasury stock is popular when there is a deep plunge in the stock market," said Nuttachart Mekmasin, executive director of Trinity Securities.
Mr Nuttachart said companies choose between trading off cash payments in terms of dividends to shareholders or buying free-floating stocks in the market for better returns on equity and earnings per share when investment sentiment dips.
Many companies reported progress on purchasing shares from the market, including Charoen Pokphand Foods, which reacquired shares at the price of 28.50-28.75 baht per share, while the total outstanding value of treasury stock was 112 million baht for 3.89 million shares as of May 18.
"From my view, treasury stock is a sustaining factor as opposed to how companies will chase after their stocks to drive up share prices," Mr Nuttachart said.
For investors, the first point to consider when companies reacquire stock is what companies' management teams intend, he said, noting that the treasury stock programmes should not be an agenda to sustain share prices.
Investors can follow up the progress by comparing outstanding stock, as well as the percentage of the outstanding stock to a company's commitment to the treasury stock programme, Mr Nuttachart said.
Shares under a treasury stock programme can typically be sold again after six months, when the programme is completed. But these stocks must be held no longer than three years after the programmes are completed.