SM Prime board approves P5B to P10B buyback program

SM Prime [SMPH 26.75, up 2.1%; 163% avgVol] [link] disclosed that its board of directors approved a share buyback program with funding of between P5 billion and P10 billion. The board gave SMPH’s management team the discretion to set the final terms of the program. SMPH’s stock is down over 20% from its October high of approximately P33/share, and down 27% over the past three years.

MB bottom-line: That sounds huge, but SMPH is a massive corporation. It has a marketcap of P756 billion, so even if the management team elects to max out the program at P10 billion, it can only reduce the public float by approximately 384 million shares. That’s just a 1.3% decrease. SMPH’s public float percentage would hardly be affected. So what’s the point of this? Well, it gives the management team about 50 days’ worth of SMPH trading volume to manipulate the price of the stock. While P10 billion is almost insignificant relative to the size of the entire corporation, it’s a huge amount of dry powder in relation to the corporation’s daily trading volume. As for why SMPH would take the time to manipulate its own stock price in this way, the generally accepted reason is to benefit stockholders. Each share pulled out of the float increases the value of the remaining shares. Another favorite justification is that a buyback program is beneficial because it attracts new institutional investors who are attracted by the corporation’s willingness to prioritize stock price performance. While both of those may be true, there are also a few other reasons that are less wholesome. For starters, perhaps there are a few SMPH insiders who are looking to sell thick batches of shares but who are disappointed to have missed the P33/share highs back in October. This buyback program could apply shareholder cash to provide a nice soft pair of hands to catch those bags. Or maybe the company is just embarrassed to be trading back around its COVID-crash level and is just looking for quick-fix ways to put some lipstick on the pig until deeper reforms can take root. Who knows?

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