Grace to buy back 2.5% of shares

GRACEKENNEDY plans to buy back up to 8.4 million shares already in issue to boost return on equity.

The conglomerate’s directors approved the year-long share buy-back, which should see the company use up over $400 million of its “excess liquidity” to purchase 2.5 per cent of its share from the market, should shares hold at current prices. The company decided to repurchase the shares as its price is currently “deemed to be below its true value and an opportunity exists to enhance shareholder value”, according to GraceKennedy CEO Don Wehby. “We believe that investing in our own company is the best use of capital as we see this as a good investment for long- term returns and that the repurchase will be a major advantage to our shareholders,” he said. “We did a careful assessment, the company is now in growth mode, so we have to be prudent in how we manage cash (in case an acquisition opportunity presents itself). We took all of that into account before making the decision.” Indeed, GraceKennedy’s net profit climbed from $3 billion in 2011 to $3.8 bllion, or from $8.30 per share to $10.50 per share, which at current price, would put price-to-earnings at around 4.9 times, while its market capitalisation of $17.1 billion up to yesterday was 53 per cent of the conglomerate’s book value. Both ratios suggest that the share is undervalued. GraceKennedy’s share price has been gradually declining on the Jamaica Stock Exchange (JSE) over the last 12 months, from $60 a year ago to $51 at the close of trading yesterday, although some of the stock’s price volatility may have to do with the small number of shares (around 100) that can affect it when traded. For instance, on Monday, GraceKennedy’s share price fell by $3.48, or 6.7 per cent, while market capitalisation of the company fell by over a billion dollars on the trading of 810 shares (0.0002 per cent of all the issued shares), although the price rose again by $3, or 6.3 per cent on the trading of 1,300 shares yesterday. Wehby believes that the JSE should look at adjusting the threshold (number of shares) at which point the share price is moved, which he says is not unique to GraceKennedy. Incidentally, 8.7 million shares, or 2.6 per cent of the conglomerate’s issued shares traded last Thursday, when the share price plunged by 10.6 per cent. The group’s CEO said that the stocks were not sold by any of the senior managers or directors. The approval of the share buy-back, which will take place over a one-year period, is subject to the “remission of the tax which would otherwise be payable by stockholders of the company on the buy-back of the shares” being gazetted by the finance minister. Under section 86 of the Income Tax Act the minister “may remit the whole or any part of the income tax payable by any person if he is satisfied that it would be just and equitable to do so”. “Further notification will be provided on receipt of confirmation of the remission,” said a release by GraceKennedy. WEHBY… We believe that investing in our own company is the best use of capital

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