Alec Hogg: SA group’s massive share buyback sets stage for our experts
We couldn't ask for a better way to tee-up Monday's Rational Radio webinar where the focus is on Big Tech stocks. On Friday, the JSE's dominant listings Naspers and its Dutch-based subsidiary Prosus, rose strongly in contrast to a very soggy global market. Reason: they announced a $5bn share buyback in another effort to close a hefty discount between their underlying asset value and how Mr Market is judging them.
Share buybacks are an efficient way to bring stock prices closer to what insiders believe is their true value. They signal that directors of the company believe the business is worth more than the price at which the shares are freely available in the marketplace. Their logic being that acquiring the company's own stock from willing sellers is a better investment than investing the cash into fresh ventures. You can't fault the theory. Insiders should know the prospects of their own business far better than outsiders. But the practice is controversial because buyback decisions are not always rational.
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