Speculating on Chemrez Technologies, Inc.’s Buy-Back Program

Chemrez Technologies, Inc. (PSE: COAT) disclosed a P500 million share buy-back program on August 22, 2007 representing 9% of the current market price at that time and bought back 75,966,000 shares until 2008 spending a total of P 215 million. They never bought additional shares ever since until August 14, 2012 where the Company disclosed a re-confirmation of their intention to buy-back their own shares. [1] Since that date, COAT has already bought a total of 2.2 million shares spending approximately P6.4 million.

COAT initially intends to buy 9% of its own shares or 125 million shares. Currently, COAT already bought a total of 78 million of its own shares which means that the Company still has to buy 47 million more. The Company still has P277 million left of the budgeted P500 million. Should they push through with their buy-back program, it would mean that the company is willing to pay P5.83/sh (P277m/ 47m sh).

COAT has enough cash to complete the buy-back program:

Pros in the speculation:

  1. Scarcity of COAT shares may force the Company to buy up.
  2. They may buy up COAT to increase shareholder value.
  3. Buy-back program may be part of D&L’s strategy to increase their interest in COAT to above 50%. Currently, D&L only has 19.03% on COAT. D&L may use the IPO proceeds to invest in COAT since it is stated in their prospectus that they intend to use part of the proceeds for “acquisitions and investment”. Should D&L buy COAT @ 5.83 per share, it would only take P2.4 billion to acquire 30% of the shares which is only half of the projected proceeds of P5.6 billion.

Risks in the speculation:

  1. COAT may not push through of the buy-back program despite they are awash with cash.
  2. There may be enough sellers for them to accumulate 47 million shares to complete the buy-back program.
  3. There may be enough sellers at a lower price for D&L to acquire 30% of COAT shares in the market.
  4. D&L may not intend to acquire an additional 30% of COAT. Until it is disclosed that the “acquisitions and investment” use of proceeds is really intended for COAT we can never be certain.

 

Source:

  1. Boar re-confirmation of authority to engage in share buy-back program, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-6064_COAT.pdf

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

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9 thoughts on “Speculating on Chemrez Technologies, Inc.’s Buy-Back Program

  1. Great Analysis… I appreciate your analysis referring to disclosure of D&L.. It might holds true. I’m glad I come across your blog.
    Thanks
    mangyan damian

    Reply
  2. I’ve made this computation from disclosures.
    COAT buyback as of 12/5/12:
    7,087,000 shares valued at 23,183,700 pesos
    500,000,000 – 23,183,700 = 476,816,300 money left for buyback.

    Reply
  3. I’m glad that you are considering my arguments. Just take note of the risks. 🙂

    COAT needs to acquire 125M shares, with a total of 84M shares bought as of yesterday, remaining shares COAT has to purchase under the buy back program is 41M.

    As of the date the article was written, COAT has P277M remaining cash for the buy back.

    I checked the disclosure that you are referring, where did you get the P23m?

    Looking forward for your thoughts.

    Renzie

    Reply
    • if you look at the treasury shares from 8/31/2012 – 12/5/12, 83,973,000 – 76,166,000 = 7,807,000 shares. I had a spreadsheet that I created and each price/share they bought, total = 23,183,700.00 pesos /7,807,000 = 2.96 is their ave price since they started buyback. I understood the risk,- speculation (may pan out or not and I know my limitations). I was curious how this is gonna play in the market. When I saw your blog, I was about to sell my shares. My ave is 2.85. I am holding to my shares for now. i am not in economics.. I’ve pick up your speculative ideas and right now, I am excited to see how it will play in a short term. thanks again..

      Reply

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