Graphic: Share buybacks by firms globally hit a three-year high

SOL Global Investments

06/12/2021 15:13

Dec 6 (Reuters) - Companies are generously rewarding their
shareholders through share buybacks this year, using higher
profits and cash flows as they recover from 2020's
pandemic-induced slowdown.
    According to the data from financial content platform
Dealogic, companies have globally paid $68 billion through share
buybacks between January to November this year, the highest
since 2018.
    The data showed Europe led this year's buybacks, with a
total of $27.12 billion, followed by Japan's $16.36 billion,
while U.S. firms have spent about $8 billion.
    The increase in share buybacks is in contrast to a slump in
repurchases in 2020 as companies looked to conserve cash amid
uncertain business conditions.
    "Companies that performed well during the pandemic found
themselves with excess cash and saw their own stock as
undervalued compared to others that were achieving unheard of
valuations," said Andy DeFrancesco, CEO at private equity firm
SOL Global.
    "The looming fear of changes to the tax treatment for
buybacks has likely accelerated the process."
    A surge in oil prices has boosted the energy sector,
prompting companies to announce buybacks and dividends.
    Chesapeake Energy  CHK.O  said this month it would buy back
up to $1 billion of its stock, while Chevron Corp  CVX.N 
increased its share buyback guidance range to $3 billion-$5
billion per year, the level it used to pay before the pandemic.
    Exxon  XOM.N , the largest U.S. corporate repurchaser of
shares until 2016, vowed to begin quarterly buybacks in 2022.
    Banks have also announced higher share buybacks as they had
to set aside lesser provisions for bad loans this year due to a
fall in corporate defaults.
    "Shareholder returns tend to lag earnings growth by a few
quarters, so we should see more capital returned to shareholders
through buybacks and dividends in 2022," said Bimal Patel, fund
manager at Canada Life. 
    "We expect capex, M&A and dividends to grow in 2022, albeit
more slowly than in 2021. We think buybacks will be the one area
that accelerates in 2022."
    The companies that have announced buybacks have also
outperformed the broader markets.
    The S&P 500 Buyback Index  .SPBUYUP  has risen about 27%
this year, compared with the S&P 500 index's  .SPX  21%.  A
European buyback index compiled by Solactive(.BUYEU) has risen
25%, versus 16% gains for a benchmark of dividend payers'
shares  .SD3P .
    As a result, some companies have employed share buybacks to
boost share prices and trading volumes.
    SoftBank Group  9984.T  announced a buyback last month after
it revealed a quarterly loss. French insurer Scor  SCOR.PA 
announced a $233 million buyback to offset the impact of floods
and hurricane Ida which hit its third quarter earnings.
 urn:newsml:reuters.com:*:nL1N2RN0CI urn:newsml:reuters.com:*:nL1N2S000C
    "There are the companies that have underperformed during the
incredible rally over the past year who may want to artificially
create demand for their stock in the market and give the
impression that volumes are much higher than they really are,"
said SOL Global's DeFrancesco.
    "That may work for a short time but is not a sustainable
strategy."

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Global share buyback volume    https://tmsnrt.rs/3pBep7Q
Breakdown by sector for global share buybacks    https://tmsnrt.rs/3GlEnCZ
Breakdown by region for global share buybacks    https://tmsnrt.rs/3xWsFeZ
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 (Reporting By Patturaja  Murugaboopathy and Gaurav Dogra in
Bengaluru
Editing by Vidya Ranganathan and Toby Chopra)
 ((patturaja.murugaboopathy@thomsonreuters.com;))