Wednesday, December 13, 2006
HTC Implements Stock Buyback Plan
Posted by Nurhisham Hussein in "NEWS" @ 07:30 PM
"High Tech Computer (HTC) has decided to carry out a stock buy-back plan, aiming to purchase as many as five million outstanding shares of its own stock from the Taiwan stock market at a price ranging from NT$601 to NT$800 (US$18.50-24.60), the company said on December 12 after a board meeting."
Look who's got a cash hoard! For those of you who aren't familiar with the stock market, stock buyback plans are company operated initiatives to buy their own stocks on the open market - these shares are then either kept for later disposal, or more typically canceled. Through the operation of supply and demand, the share price should rise if the amount bought exceeds the amount offered for sale at any given price, thus raising the value of shares held by investors who aren't on the market. They're therefore pretty popular. ;) On a related note, HTC's latest monthly revenue figures hit a record high - again![More after the break.]
There are a few ramifications to the share buyback scheme:
• You need to have quite a bit of free cash lying around to do this - as stated in the article, HTC is willing to spend up to NT$4 billion or about half a month's sales. That's the equivalent of US$123 million at today's exchange rates.
• It reduces the 'free float' and liquidity of shares in the market i.e. the shares available for investors, as opposed to long term shareholders.
• As noted it also raises the value of shares of long term shareholders. Since HTC shares are pretty closely held, there's potential for a conflict of interest here - not that that's untypical in Asian stock markets.
It's also interesting to look at the reasons behind this plan - HTC's shares have fallen by 20% since Dec 1, yet the TSEC Weighted Index (the barometer for Taiwan's stock market - it's analogous to the S&P 500), is down by less than 1% in the same period. If this is because investors have decided that HTC stock is overvalued, HTC may be pushing against a string here and just wasting their money. They might be better served in investing that NT$4 billion in boosting R&D, or building up their presence in the US and other parts of the world.
In any case, this is a pretty interesting development, if only as a hint into what's really going on behind the scenes.
Look who's got a cash hoard! For those of you who aren't familiar with the stock market, stock buyback plans are company operated initiatives to buy their own stocks on the open market - these shares are then either kept for later disposal, or more typically canceled. Through the operation of supply and demand, the share price should rise if the amount bought exceeds the amount offered for sale at any given price, thus raising the value of shares held by investors who aren't on the market. They're therefore pretty popular. ;) On a related note, HTC's latest monthly revenue figures hit a record high - again![More after the break.]
There are a few ramifications to the share buyback scheme:
• You need to have quite a bit of free cash lying around to do this - as stated in the article, HTC is willing to spend up to NT$4 billion or about half a month's sales. That's the equivalent of US$123 million at today's exchange rates.
• It reduces the 'free float' and liquidity of shares in the market i.e. the shares available for investors, as opposed to long term shareholders.
• As noted it also raises the value of shares of long term shareholders. Since HTC shares are pretty closely held, there's potential for a conflict of interest here - not that that's untypical in Asian stock markets.
It's also interesting to look at the reasons behind this plan - HTC's shares have fallen by 20% since Dec 1, yet the TSEC Weighted Index (the barometer for Taiwan's stock market - it's analogous to the S&P 500), is down by less than 1% in the same period. If this is because investors have decided that HTC stock is overvalued, HTC may be pushing against a string here and just wasting their money. They might be better served in investing that NT$4 billion in boosting R&D, or building up their presence in the US and other parts of the world.
In any case, this is a pretty interesting development, if only as a hint into what's really going on behind the scenes.
