Natfoods mulls share buy-back

buy-back at its Annual General Meeting scheduled for next month.
In a statement to shareholders, NatFoods said it would use its own resources to purchase the shares, taking into account its ability to pay debts and maintain adequate working capital levels.
The company has 68 400 108 shares in issues and as of yesterday the share price closed at US80c.

“Acquisition shall be of ordinary shares which, in aggregate in any one financial year, shall not exceed 10 percent of the company’s issued ordinary share capital,” said the company in a statement.
The maximum and minimum prices at which such ordinary shares may be acquired will be 20 percent above and 25 percent below the weighted average of the market price.
The ZSE listing requirements allow a company to purchase up to 20 percent of its issued share capital in one financial year.

The Companies Act stipulates that a company’s acquisition of ordinary shares in the aggregate year may not exceed 10 percent of the company’s issued share capital from the day of grant of this authority.
A share buy-back is usually considered a sign that the company’s management is optimistic about the future and believes that the current share price is undervalued.
A wave of share buy-backs has hit the ZSE as companies seek to re-correct-undervalued stocks and raise capital.

Most companies are intending to mop up liquidity in their stocks to boost prices and stimulate demand for the shares.
Companies are purchasing their own shares to reduce the number of shares on the market to increase the value of available shares.
Share buy-back is one of the methods, which is being adopted by local companies in the quest to raise capital for re-establishing their businesses.

Analysts said companies could use this initiative, as a preliminary to rights issues as stock prices would have appreciated.
“Firms embark on share buy-backs to boost their share prices so that when they embark on rights offers, it would be at a good price and would also achieve a low cost of equity,” said the analyst.

National Foods is also seeking shareholders’ approval to elect and appoint new directors as well get a nod to issue loans to its directors.
National Foods rationalised its operations in the full year to December 2010, given the lack of local raw materials, and has continued to make calls on the more marginal business during 2011.