Philippine Companies Turn to Share Buybacks as Market Valuations Weaken

 

Major Philippine companies are doubling down on share repurchases as declining stock prices put pressure on market valuations, signaling that many businesses still see greater value in remaining publicly listed than withdrawing from the stock market.

Share buybacks have become an increasingly visible response to persistent market weakness, allowing companies to purchase their own shares and potentially improve shareholder returns. The strategy reflects management's belief that prevailing market prices do not accurately represent the underlying worth of their businesses.

Philippine Stock Exchange (PSE) president and CEO Ramon Monzon has identified three principal options for companies whose shares trade below their perceived value: improve operational efficiency to strengthen earnings and dividends, repurchase shares to support stock prices, or voluntarily delist from the exchange.

For companies with sound fundamentals, the decision often comes down to whether the market's pessimism is temporary or signals a more lasting problem.

Major firms expand share repurchase efforts

Several listed companies continued buying back their shares last week, including Universal Robina Corp., Cebu Air Inc., Fruitas Holdings Inc., SM Prime Holdings Inc. and International Container Terminal Services Inc.

Other corporations have committed substantial capital to similar initiatives.

Ayala Corp. has been purchasing shares of its real estate subsidiary, Ayala Land Inc., with a P5-billion allocation to reinforce its support for the property developer. Ayala Land is separately implementing its own P10-billion buyback program to help strengthen its stock price.

DigiPlus Interactive Corp., chaired by businessman Eusebio Tanco, extended its share repurchase program last July for another year, maintaining an authorized budget of P5.36 billion.

First Philippine Holdings Corp., part of the Lopez Group, also announced earlier this month that it would allocate P5 billion for share buybacks over a two-year period.

These commitments suggest that several companies view current market conditions as an opportunity to acquire their own shares at prices they consider attractive, rather than abandon the public market.

Buybacks can improve shareholder value

For fundamentally strong businesses, repurchasing shares can be a practical response to a temporary disconnect between market prices and corporate performance.

Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., considers buybacks generally preferable for companies whose underlying financial health remains solid despite depressed valuations.

He said delisting becomes more appropriate when management sees little likelihood that the market will eventually recognize the company's actual worth.

Juan Paolo Colet, managing director of China Bank Capital Corp., said the choice ultimately depends on a company's strategic objectives, financial circumstances and assessment of the benefits of remaining listed.

When management believes undervaluation will not last and the stock market remains an effective platform for price discovery, fundraising and wealth creation, a buyback may offer greater advantages, particularly when the company maintains sufficient public float.

Repurchases can also increase earnings per share by reducing the number of outstanding shares. If a company's earnings remain unchanged while its share count declines, each remaining share represents a larger portion of those earnings.

However, the strategy does not automatically create value. Its effectiveness depends on the price paid for the shares, the company's financial position and whether repurchases offer better returns than alternative uses of capital.

Delisting gains ground among selected companies

Despite the continued preference for buybacks among several major corporations, other businesses are choosing to leave the exchange.

Robinsons Retail Holdings Inc., part of the Gokongwei Group, was removed from the PSE's official registry on Aug. 31 following its voluntary delisting. The company cited market valuations that failed to reflect its intrinsic value.

Figaro Culinary Group Inc., a food and beverage company, has also announced plans to voluntarily delist. Meanwhile, MerryMart Consumer Corp. intends to exit the exchange as it prepares to become directly part of the DoubleDragon Group.

These cases highlight a different calculation. Remaining listed can provide access to capital markets, broaden ownership and give investors a publicly traded avenue to buy and sell shares. But those benefits come with compliance requirements, disclosure obligations and exposure to market sentiment that may not align with a company's long-term performance.

When management believes the advantages of public ownership no longer justify its costs, a delisting at a fair price can provide an alternative means of returning value to shareholders.

Market confidence remains a key consideration

Jash Matthew Baylon, an equity trader at The First Resources Management and Securities Corp., said share repurchases can provide broader support to market sentiment than taking a company private.

When established companies continue buying back shares despite economic and geopolitical headwinds, their actions can reinforce investor confidence and encourage buying activity. Such commitments may help counter pessimism, particularly when stock prices fall below levels that investors consider justified by business fundamentals.

Baylon acknowledged that liquidity could remain constrained in the near term as investors adopt defensive positions amid geopolitical risks and macroeconomic uncertainty. He nevertheless expects a broader economic recovery to eventually improve stock performance, potentially benefiting investors who accumulate shares at depressed valuations.

From a corporate perspective, buyback programs also offer flexibility. Companies can reduce or suspend repurchases if financial conditions deteriorate or more pressing investment needs emerge.

Going private, by comparison, can give management greater freedom to pursue long-term strategies without the pressure of short-term market movements. That flexibility may be attractive for businesses that believe public-market expectations interfere with their ability to focus on operational growth.

The decision hinges on long-term value

The growing use of share buybacks underscores a fundamental distinction between companies experiencing temporary market discounts and those questioning the benefits of remaining publicly traded.

Repurchasing shares allows a business to signal confidence in its prospects while potentially improving per-share financial measures. Delisting, meanwhile, removes the company from public trading and can provide greater strategic independence, provided shareholders receive fair consideration for their holdings.

Neither approach guarantees better outcomes. A buyback can strengthen shareholder value when shares are purchased at an attractive price without compromising financial stability. A delisting can make sense when the costs of public ownership outweigh its benefits and the transaction adequately compensates investors.

For Philippine listed companies navigating a difficult market, the central question is whether staying public offers a credible path to long-term value creation. Those confident that market sentiment will eventually improve appear willing to keep investing in their own shares, while others are concluding that leaving the exchange may be the more effective route.