Banking group HSBC (HSBA) plans to extend its share buyback scheme by a further $2bn. This will bring the total buybacks made by the bank to $5.5bn since the second half of 2016.
The news comes alongside solid results for the first six months to 30 June. The figures include an adjusted pre-tax profit hike of 12% to $12bn on a year-on-year basis.
Shares discussed the recent rise of corporate share buybacks in the most recent issue, which you can read here.
IS THE PRICE RIGHT FOR BUYBACKS?
HSBC’s announcement on Monday 31 July does raise questions, particularly around the timing. The stock has been one of the UK banking sector's better-performers over the past 12 months, rallying from lows of 420p in April 2016. The stock is now changing hands for 757.6p, after a near 2% rise today.
‘While it does look odd that HSBC is buying back shares when they are trading at multi-year highs, the stock is at least trading at just one-times book (or net asset) value, to suggest that management is not overpaying,’ says Russ Mould, investment director at AJ Bell.
It is also worth pointing out that the share price is only now approaching the 768p highs of March 2013.
AJ Bell's Mould also says that given the upcoming departure of the bank’s chairman Douglas Flint, and possibly its CEO Stuart Gulliver next year, the move shows management’s confidence in the future.
HISTORY OF SHAREHOLDER RETURNS
The bank has returned over $25bn to shareholders over the last three years and its results today suggest that the restructuring plans of Gulliver are going well. He says ‘In the past 12 months we have paid more in dividends than any other European or American bank’.
Given doubts about HSBC's ability merely to keep paying its dividend, doubters appear to have been silenced for now.
