Thursday, 19 January 2017

ISOTeam - Shares buyback

As a regular investor, we only get updates on the company via quarter, semi annual or annual reports. Companies will also announce on SGX when there are activities that could result in a material impact to the share prices. It is inevitable that staffs working within the company have more information about the company they are working for, and they will also be more aware of the macro economic aspect that can affect their company's bottom line.

Hence, when a company conducts share buybacks, it is a sign that their shares are undervalued, at least from the company's perspective.
ISOTeam share performance relative to share buy backs
ISOTeam conducted 2 waves of share buybacks over the past year. If you refer to the diagram above, the first wave of buybacks took place right on the Ex date of the issuance of bonus shares. There was a couple of Announcements: <Award of contracts> on 31May 2016 as well as 10 January 2017. It did not help to explain the spike up of share prices during end July, but it does have some correlation with the rise in prices on 10th January 2017. Volume increased starting from 7th January and on 10th January, it started increased in tandem with the share prices.

EDIT: There was an announcement yesterday after this write up was published.
Asset Acquisitions and Disposals::Notice of Transfer of Treasury Shares
The share buybacks conducted recently seemed to be in preparation for the acquisition of Rong Shun Engineering & Construction Pte Ltd.

I took a brief look at their 2016 year end report and extracted 2 information for a simple comparison.

EPS
2015: 3.23 cents
2016: 3.23 cents

Price at last day of work year for ISOTeam (30 June)
2015: $0.31
2016: $0.32

Key things I like about the company:
1. Operates in a stable industry
2. Recurring revenue based on contracts with government agencies
3. Cash on hand sufficient to pay off borrowings from banks
4. Dividend policy of 20% profits

Key things I'm concerned about
1. Overseas venture
2. Share prices had run up

Elaborating on point 2: The share price based on the closing today is $0.405, which is actually not far off from the company's last purchase at $0.395. However, it is 23% higher than that of 2016 year end closing. Therefore, if the half year reported EPS is not at least 1.986 cents, I'm concerned that the price had risen higher than the company fundamentals and hence could does not have a wide enough margin of safety.

Shall await their latest financial report before making a decision.

Disclaimer: I'm not vested in ISOTeam but it is in my watchlist. The above information are based on my limited understanding and does not constitute a buy or sell call. Always do your own due diligence before taking any actions. 






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