By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
FOCOL Holdings chairman yesterday revealed that its share buyback was launched because it “can’t believe” investors place so little value on a stock that consistently delivers healthy profits.
Sir Franklyn Wilson, pictured, told Tribune Business it was “not rationale” for the BISX-listed petroleum products supplier’s shares to be trading in the “low $3” per share range given strong fundamentals that include a 7.7 percent profits rise for the quarter to end-October 2018.
Speaking out after FOCOL Holdings confirmed it had launched a short-term share buyback lasting just three months, Sir Franklyn contrasted the company’s share price with that of Commonwealth Bank - which also recently underwent a stock split.
Pointing out that both BISX-listed entities had paid out 12 cents per share in dividends to their respective shareholders in 2018, he said FOCOL Holdings’ stock price was languishing more than $1 below Commonwealth Bank’s.
“We did go into the market the other day to support the share price,” Sir Franklyn said. “We don’t quite understand why our share price is trading at the level it is. If you act rationally there’s an opportunity to do better.
“We went into the market at $3.24 to support it. We were trading consistently in the high $3-plus level, and in July 2018 were at $3.75 per share, but now we’re trading at $3.01. We can’t believe, and don’t quite understand, why anyone would sell FOCOL shares at $3.01 except that they’re desperate for money.
Sir Franklyn confirmed that the share buyback was launched to signal to the market that FOCOL Holdings believes its stock is seriously undervalued, and to support the share price by taking out small retail investors desperate to sell at any price to obtain liquid cash.
The move is also designed to boost shareholder value, and reward those investors taking a long-tern view of FOCOL’s prospects, as the company plans to cancel all the shares it purchases.
This will enhance earnings per share (EPS) and dividends per share, with Sir Franklyn confirming: “We want to send a signal to the market that people may be desperate for money, but in terms of the fundamentals of the company it is not a rationale decision [to sell out so low], and we don’t know why they’re doing it apart from that reason.”
He pointed to FOCOL Holdings profits for the year to end-July 2018, which came in at a healthy $25.031m or $022 per share. While a more than-$5m drop on the prior year, the BISX-listed petroleum products provider is once again beating comparatives with profits for the 2019 first quarter up more than $400,000 on the year-before period.
Taking Commonwealth Bank as a comparison, due to the two companies’ recent stock splits and matching 2018 dividend payouts, Sir Franklyn argued that there was “a significant disparity” in their prices that had begun to frustrate FOCOL Holdings.
It is far from the first BISX-listed company to initiate a share buyback, and seek to overcome the relatively low levels of liquidity that have constantly impacted the Bahamian capital markets, with share prices often at the mercy of small retail investors who are willing to accept any price in their eagerness to sell.
As a result, many stocks failed to trade on fundamentals, due to the major discount that retail investors are prepared to sell at. This pushes share prices down still further, and with buyers few and far between, many publicly-listed companies have seen a massive ‘overhang’ or supply of sellers build up during their histories.
Cable Bahamas, AML Foods and Bahamas Waste have all previously initiated share buyback initiatives of their own, although FOCOL Holdings has been the only one so far to limit its efforts to three months.
“We don’t want to be in the market as a perpetual player. We’ll see what happens at the end of three months,” Sir Franklyn said, indicating that FOCOL Holdings Board may consider extending it.
“The point is the Board has an obligation to all the shareholders. Those who stay with the company are rewarded in two ways; dividends and capital appreciation. The Board does what it can to maximise returns to shareholders on both counts.
“It’s a question of supporting the market. That’s all we’re trying to do. Beyond that we have no strategic objective. It’s a short-term thing. We’re just trying to signal to the market that to sell FOCOL at $3.01 is not a rational decision unless you’re desperate for money.”
FOCOL Holdings’ share buyback is likely already having an impact. The company’s stock price rose 4.92 percent yesterday, climbing from $3.05 to $3.20 per share following the trade of some 5,000 shares.
This moves the stock price away from the 52-week low of $3.01, although it is still well short of the $4.47 high achieved in the past year.
Comments
DonAnthony 5 years, 8 months ago
Dear Mr. Wilson, I am a longtime Focol shareholder and I empathize with your incredulity at the undervalued share price. Relative to the market and particularly compared to Commonwealth Bank, Focol is tremendously underpriced. Commonwealth is a special case, trading at an absurd P/E multiple (based on fundamentals and its historical, traditional multiple Commonwealths share price should be half what it is now) for many reasons but particularly because they always put shareholders first and this is especially so in their dividend payout ratio which currently is at 80%. Focol’s ratio on the other hand is just 48%. This is too low. This is where your focus should be.
Buybacks help but the impact is limited and short lived. Save the millions used on the buyback and increase the dividend. Bahamians LOVE dividends and as the dividend yield increases so will the share price. Focol has more than ample room (net income) to comfortably increase the dividend, the payout ratio should be immediately increased to at least 60%. I would argue even more. Focol because of the stability of its product and cash flow as well as very low debt should have a higher yield than 48%! This will be much more effective and lasting than talking up the stock or using buybacks. Increase the dividend and the share price will take care of itself.
realitycheck242 5 years, 8 months ago
DonAnthony Thanks for your insightfull analysis on the share prices for Focol and Commonwealth Bank. What is your opinion on the present share prices of Cable Bahamas based on their 2018 Annual report company fundamentals.
DonAnthony 5 years, 8 months ago
Well cable Bahamas is the anthesis of Focol, it’s is fantastically overpriced based on the fundamentals. Indeed, the market has not priced in the very, very serious existential crisis Cable is in.
Reading the 2018 annual report is an exercise in deflection and distraction by management. Every paragraph mentions the tremendous increase in revenues to 250mill a year. One has to search in the fine print for the 50 plus million loss in net income.
Indeed cable lost over 50 million plus in the previous fiscal year 2017. There has been eight consecutive quarters of loses. It’s prospects are beset on all sides: the legacy business of cable, voice and internet is a non growth area with rivals seeking to poach a bigger slice on a non increasing pie, Florida has been a failure, and the savior Aliv while almost reaching projections for subscribers is still not profitable. It is anticipated break even is in the next few quarters at best. ARPU has fallen well short of projections.
The near term risk is Cable is down to just 18 million cash, last quarter was an 11 million loss, so two more similar quarters and cable is broke. Going back to the local capital market with another preference share offering is a non starter. Soon it will be time to either fish or cut bait.
Cable has promised to resume dividends by the end of fiscal 2019 (June). This is an impossibility, will be interesting to see how the market reacts when this reality sinks in. It is not currently priced in. Finally, cable has half a billion Debt, and has lost 100 million the last two fiscal years. Hard to see how it will ever be repaid. Will cable even survive to repay it?
Given these facts stating that cable is overpriced is the understatement of the year.
TalRussell 5 years, 8 months ago
Yes, yes and yes ma comrade Don, given what you're professional opinion saying is but another crispy ripe too damn late rescue toxic BOB like candidate transfer half a billion debt over to some kinds special purpose vehicle (SPV), yes, no?
realitycheck242 5 years, 8 months ago
Very interesting . I can't wait for the rosy picture cable CFO will paint at the upcoming AGM ...thank you very much
John 5 years, 8 months ago
You did mention that Cable's revenues increased to 250 million a year. Their explanation for the millions in losses is the build-out of the cable system in Florida and the build-out of the Aliv network here. (Is Cable involved in any way with the Fusion complex on Gladstone Road. And the rationale for their attempt to resume dividends by June is that both the Florida and Bahamas projects will be complete by then cutting down tremendously on expenses while the company continues to realize additional revenue. And while the company may be a half billion in debt that is only a payback of 25 million over a 20 year period or $50 million over ten years, if the company can realize the level of revenue if has projected with the corresponding profits. In the meantime, BTC seems to be digging a hole for itself (or allowing Aliv to dig it for them). Word is that BTC is having a cash flow problem and struggling to meet day to day expenses. It has changed top management several times since changing ownership and key staff continue to flee the company like a sinking ship. Of course the government should not allow BTC to go under, but being a private concern the decision is not theirs alone to make. And as early as the end of this year many networks will be upgrading to 5G internet speed. So basically as soon as Aliv is done installing its phone system across the islands it will have to start upgrading it.
realitycheck242 5 years, 8 months ago
Market forces will prevail and the best innovative company will win. Marketing all quad play provider products to the hotels in this country is going to be key.Especially which company can win the new developments like the pointe, Paul winn condominiums on cable beach and the new hurricane hole project as clients. Right sizing at BTC will save the ship but the turning around to profitability is going to very painfully for the staff at all levels there. Gone are the days when the politician s called the shots so favouritism has switched from Bahamians to the expats. Cable seams to have the fusion complex as a client but does not on the surface have any ownership interest. The above analysys of CAB by DonAnthony seams to be spot on but the cably ship is too big to fail so I think they will just offer more preference shares until annual revenues can support More depth payments
John 5 years, 8 months ago
there are several factors that are driving down the price of FOCOL shares. Firstly there is the unstable price of oil and the uncertainty it creates on the market. Even though FOCOL doesn't benefit from oli price increases per se, the instability can cause accounting problems. Secondly, there is the uncertainty of the future of oil and gas. Many countries have aggressive plans to switch to electric or renewable energy vehicles and while that push may not be as aggressive here the number of electric and solar/electric vehicles are increasing. And of course, there are the talks about the relationship between FOCOL and BPL. While Focol claims BPL only uses their terminals to transfer its fuel from ships to its storage containers, some believe that the rumors that FOCOL is supplying BPL with fuel to the tune of 1/2 Billion a year. And so they also believe the new agreement between for BPL to convert to LPG in 2020 will bring this agreement to a close, causing hundreds of millions in revenue loss for Focol.
Well_mudda_take_sic 5 years, 8 months ago
When Sir Snake tries to talk up the value of shares in a company that he controls, take that as a clear signal for you to dump any shares you own in that same company as soon as you can. LMAO
Naughtydread 5 years, 8 months ago
This dude out here tryna pump his own bags loool. Can't even make this shit up.
TalRussell 5 years, 8 months ago
Yes, or no comrades who be passive income seekers, does likes investing in dividend stocks, yes, no, low yields for investment risk?
FreeportFreddy 5 years, 8 months ago
No
bogart 5 years, 8 months ago
Common sense.......time ago.... da few an many more gettin pore .....pore gets larger to be porer.... an da average middle class...join da pore cause the soup line gettin longer.....no ...hav jobs....income...laid off even by gubbermint some 2,500....more regressive VAT.... Wealthy fewer population not ...no personal income taxes.....no ..Corporate taxes... Plenty encroaching economic living survival stressed....make disposable income disappear.....a.cascading more...average middle class n dey will done sells to make emds meet..more an more rougher.......pore porer more time on soup line......rich gets richer..no income taxes...no corporate taxes....has advantages opportunities....basic .
TalRussell 5 years, 8 months ago
Yes, yes and yes not so easy comrade CEO put shine back on fading interest publicly traded stock, yes, no ask Sir Frankie?
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