Converge Technology Solutions
(CTS-T) C$6.69
Aggressively Buying Back Stock
Event
Data from SEDI indicates that Converge has been very active with its NCIB.
Impact: SLIGHTLY POSITIVE
Buyback activity details. On August 8, 2022, Converge announced TSX approval of its NCIB that allows for the repurchase and cancellation of ~10.7 million shares, representing 5% of the issued and outstanding common shares as of July 31, 2022. Converge started buying back its shares on August 11, after reporting its Q2/F22 results. According to SEDI, in less than two months (August 11 to September 30), Converge has repurchased over 5 million shares or almost half of the amount allowed under its NCIB, at a cost of ~$30mm.
Recent share-price outperformance aided by the share buyback. We believe the aggressive share buyback activity has helped Converge's share price materially outperform since it started buying back its stock, with the stock down just 6% since August 10, the day before its share buyback activity began, significantly better than the peer-group average of a 19% decline and the 17% decline in the Nasdaq. We note that this outperformance is despite the short interest increasing by ~1 million shares since the end of July to the end of September.
Prior to its buyback activity, Converge's shares significantly underperformed, as YTD to August 10, its stock was down 35%, compared with the peer-group average of a 17% decline and an 18% decline in the Nasdaq. YTD, its share price is still underperforming, down 38% vs. the peer group and the Nasdaq at a 32% decline; however, the gap has narrowed.
We note that there has also been insider buying activity since the buyback commenced. Specifically, insiders have purchased ~36k shares worth ~$200k. Some were purchases related to purchase/ownership plans, with 20k shares worth ~$115k being purchased in the public markets.
Our take. We believe the share buybacks are a good use of Converge's capital, given its solid balance sheet and FCF generation and the pullback in the share price. We are uncertain as to Converge's plans to support the share price beyond the current NCIB limit, as it looks to balance share buyback activity with its active M&A strategy