KARACHI: The share price of JDW Sugar Mills Ltd hit the upper limit for intraday gains on Monday after the company told investors it’s going to buy back and cancel up to two million of its shares from the stock market.

A share buyback is an indication that the company likes its stock enough to purchase it from the general public.

The intended volume of the share buyback will reduce the company’s free float — shareholding that’s in the hands of public investors as opposed to locked-in shares held by the sponsors — by more than one-fifth.

Speaking to Dawn, JS Global Assistant Vice President Waqas Ghani said the company’s sponsors seem to expect a higher level of profitability in the next two years.

“Sugarcane production is going to be strong following nationwide floods,” he said, adding that higher productivity is likely to reflect in earnings growth.

The company will start buying back its shares on Nov 11. It will keep repurchasing the shares until May 2, 2023, or the date when the targeted buyback volume is achieved.

The company’s decision to buy back its shares is aimed at improving its “future financial position”.

Of late, many listed companies have resorted to repurchasing their shares from the market. The total number of shares goes down once a company conducts a share buyback. As a result, the company’s break-up value and profit per outstanding share go up.

The sugar producer said it’ll use the funds from its “distributable profits” and utilise its “internally generated cash flows” for the transaction. The buyback will take place at the share price prevailing on the stock exchange during the purchase period.

The intended volume of buyback shares (20m) constitutes 22.3pc of the company’s publicly tradeable shareholding.

The number of outstanding shares of JDW Sugar Mills will reduce from 8.96 million to 6.96m after the transaction. With a market capitalisation of Rs18.63 billion, the current price of 20m shares is going to be over Rs623.5m. The company’s share price increased 7.5pc to Rs311.75 apiece.

“It’ll also provide an opportunity of exit to those members who wish to liquidate their investment (either) fully or partially,” it said.

Published in Dawn, October 11th, 2022