S i2i to Buy Back 10% of Outstanding Shares

Singaporean company S i2i Ltd. (SES: BAI) has notified investors that it intends to buy back 10% of the company’s outstanding shares.

The announcement was made via a press release & presentation published on the company’s website after the resolution passed at the company’s annual general meeting on August 1st.

Shareholders gave the company a mandate to buy up to 1,371,245 shares and to complete the buyback by the next annual meeting. The start of the mandate was noted as August 1st, 2017.

S i2i shares have experienced a tremendous return year to date. Shares have risen 62% from $1.74SGD so far in 2017. Shares are up 108% in 12 months, outstanding considering the company’s difficulties.

S i2i 12 Month Performance
S i2i 12 Month Performance

The company’s shares were put on the Singapore Exchange’s watch-list March 4th, 2015, a list of companies that have failed to meet specific Singapore Stock Exchange listing requirements, for violating Rule 1311 of the SGX-ST Listing Manual. The rule relegates companies to the watch-list if they have recorded 3 or more years of pre-tax losses and a market capitalization below $40 million SGD. It also ran afoul of the exchange’s minimum share price rule, which came into effect March 2nd, 2015.

Despite the problems, some investors have looked at the company’s shares as a tremendous opportunity. Net Net Hunter analyst Navneet Singhal was particularly bullish on the stock.

“Often companies that are experiencing large business problems will be punished by investors, pushing stock prices down to ridiculous levels. In S i2i’s case, investors were so pessimistic about the company that they’ve priced the company well below liquidation value.”

Navneet was referencing a classic measure of liquidation value first proposed by Warren Buffett’s teacher, Benjamin Graham. The idea is to buy firms below their current asset value less all liabilities and obligations prior to the common. The result is the company’s “net current asset value” or “net net” value.

The strategy calls for buying a group of sub-liquidation value firms and relying on the average return of these sorts of stocks to produce great portfolio performance. Graham’s net net stocks have been shown in academic studies to more than double the market’s annual average return. Graham himself recommended the approach for what he dubbed “enterprising investors” in his 1972 best seller, The Intelligent Investor. Net Net Hunter is the leading online resource when it comes to Graham’s net net investing.

“A nice thing happens when a company buys back shares for less than their fair value. The excess value captured accrues to the remaining shareholders, increasing the value of their shares. Buybacks also signal to investors that the company has cash in excess of what’s needed to survive the firm’s current problems and that management is shareholder focused,” Navneet explained.

Despite Chairman Modi effectively controlling over 32% of the company’s outstanding stock, he abstained from voting for or against the proposal. The resolution passed with 80% of the participating shares voting for the plan.

“I expect S i2i’s shares to perform well going forward. The company’s liquidation value is stable and the company is working hard to fix its problems. It’s shed some of its unprofitable business lines and returned capital to investors. Constant buying from the company will put a floor on the stock price and help push bids higher. The company has also started an electric vehicle taxi service in Singapore, so it’ll be interesting to see how the business develops.”

Management hopes that the buyback plan will allow small “odd-lot” shareholders an easy way to liquidate their position while helping the company boost its return on equity. S i2i Ltd. ended Thursday trading at $2.81 SGD with a net current asset value of $3.05 as of March 31st, 2017.