Lewis share repurchases make a nice old floor for the price

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COMPANY COMMENT

Lewis share repurchases make a nice old floor for the price

Circumstances do favour the strategy – little or no debt and a share price trading well below net asset value

Ann Crotty

The past few weeks have been a particularly busy time for the Lewis Group head office, which means the newly appointed company secretary has had little time to relax. It’s not just the financial 2018 results, which were released before the company secretary’s appointment on June 11.
The group announced it splashed out R85-million on the repurchase of 2.9 million of its own shares equivalent to 3% of its equity. The repurchases were made between November 21 and June 14. The price at which the shares were repurchased demonstrates the volatility of trading during the period with a low of R23 and a high of R39.50. The total price tag for the shares was R82.5-million suggesting an average price of just over R28 a share.The current share price is R30.30, significantly off its recent high of R48, with indications it may be moving into a price range that will trigger additional repurchases. The company does have the authority to repurchase an additional 1.9 million shares. At the annual general meeting in October 2017 the shareholders voted to approve the repurchase of up to 5% of its issued share capital.
This is the second significant repurchase effected by Lewis in the past 12 months or so. In October 2017 it informed shareholders it had spent R95-million repurchasing 3% of its shares. It marks a significant shift for a company that had made no repurchases since 2007.
While there is much controversy around share repurchases, with some critics describing it as a partial liquidation and contending it creates an artificial floor for the share price, Lewis’s circumstances do favour the strategy – little or no debt, growing cash balances, subdued trading environment and a share price trading substantially below net asset value.

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