RE: CNIC3 Jul 2023 15:06
STOCKOPEDIA SAYS.......
In its own words, it is “the global internet company that derives recurring revenue from privacy-safe, AI-based customer journeys that help online consumers make informed choices”.
Today it is increasing its buyback programme by £30m (from only £4m).
The reason given is succinct:
The Board considers the Buyback Programme to be in the best interests of all shareholders, given the cash generative nature of the business. It reflects the Group's renewed capital allocation policy geared towards greater returns to shareholders.
Centralnic will spend up to £34m and it will buy up to a maximum of 28.9 million shares (corresponding to 10% of the company).
I note that at the current share price (118p), 28.9 million shares would cost almost exactly £34m - so the company is saying that it would buy the maximum number of shares allowed at the current share price.
Graham’s view
I love a good buyback, but is this a good one?
According to the most recent quarterly report, the company was carrying net debt of $49 million. A good buyback is typically associated with a cash-rich business that has run out of productive uses for its enormous cash balance.
It’s atypical to see a large buyback from an indebted, rapidly growing technology company. One would imagine that a company like this has many possible productive uses for its cash, besides paying down its debt.
As for whether or not they can afford it, I note that quarterly cash generation in Q1 was $6m. Add back in the cost of buybacks and acquisitions, and real quarterly cash generation was maybe in the region of $12m.
With a market cap of just over $400m equivalent, I can understand why they might think they are undervalued at that level.
Here are some of the value metrics:
d4Rw7aGHEsVZ9XQUKuD_TkqHt85mRoudnexq_2jdrTHEValGbTOer3Dq7YkAMMVt3-GFwJDhZzV_BXQYomYf3akMep3pUJtR3UMV-vCBL4guPXRk1mfe4YJw09jYmvVtUfp3df8teiJIn6mBh1lt41c
For a company that reports in US dollars and publishes quarterly numbers, I can only assume that they consider themselves to be undervalued relative to US-based peers.
Personally, I am biased towards seeing debt reduction before buybacks, so it’s difficult for me to get fully on board with their decision to expand the buyback programme. Therefore I’m going to sit on the fence with this one for now.
Sign In
Follow the stocks
