RE: RE: WDO starts buying own shares Perky,
I prefer that the company is buying back shares at these very cheap levels instead of management for their own personal account.
The shares that Wesdome repurchases:
1. Can be held as treasury shares. These shares don't get any future dividend payments if WDO would resume with this, or the company could use these shares to fund a M&A and which would limit the creation of new shares and hence limit the dilution of existing shareholders.
2. The shares can be cancelled and the number of outstanding shares would decrease, increasing the stake of every shareholder. This would be a kind of "dividend", but one where you are not paying tax on.
Hypothetical example:
If the "fair value" of one WDO share would be $2.0, and the company buys back 100k shares at a price level of $0.50 and cancels these shares, $150.000 (100k x $1.50) of value is being created on a company level/remaining shareholders. May seem small but under the NCIB (Normal Course Issuer Bid), the company can buy back 11k shares on average a day. If they would continue the buyback at the current pace, WDO would buy back 220k on a monthly basis. This would not only take up some of the offered shares for sale in current market and reduce the selling pressure, but also would create value as the company is buying back below fair value.
With the buyback of own shares, management gives a very strong signal that they perceive the stock price as cheap and the best investment they can make with the company's money is to buy back own shares.
grts,
Trappist