RE: Share repurchase/Capital Allocation30 May 2020 17:42
Next "..the stock is under-priced and therefore buybacks make nothing but sense here..."
So, you think they are under-priced (possibly) .... Mr Market before Covid / POO war SQZ traded at a high of ~140p, we are sat at just 15% off our all time high. So imo, we are doing extremely well for an AIM company and the strong cash balance is a major factor behind our market strength in these uncertain times, providing a security blanket, that I for one appreciate.
Question, how much cash are you willing to use to buyback shares, what increase in SP would you expect and over what period?
We are likely to see a second wave of Covid, what could that do to the SP / industry ..... Hummmm !!! Let me think. So you payout for share buyback, cancel them and the SP FALLS. We now have less CoH and lower Mcap, would that then make us an easy target for cash rich acquirer.
Buybacks can raise a companies EPS as a temporary fix for a struggling company, but SQZ are not about that, we need cash to grow the business not artificially raise the SP. Remember, buybacks can not be reversed ... you will have to re-issue new equity, probably at a lower SP, causing more shareholder dilution, ending up in a worse situation.
I'm sure our BoD do not sit at home with their feet-up counting the cash ..... they are skilled businessmen/woman, constantly looking to develop the business, buybacks imo are an admittance of failure to come up with alternatives.
The ONLY reasons I could see a buyback being of benefit is if CoH is greater than MCap and you intend to use the shares kept in treasury, not cancel them but to enhance the business at a later date in the form of a share based transaction / acquisition. This is of course if the value of the SP appreciates. Or, you do it to fend off a hostile approach, but then you would want to use debt, not your cash to do that.
You expressed your annoyance about LTIP recently, what do you think would happen to the 'rewards' our board would receive if the SP was higher, but they still got the same number of shares. You can not have it both ways !
Patience, grasshopper .... ACW et al are no doubt on the case... Cash is King, don't waste that valuable bargaining resource on buybacks, that's all I'm saying
atb
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