Buybacks are the new bankers’ bonuses

If bankers’ bonuses became the symbol of an economic system gone astray during the financial crisis, share buybacks might become the equivalent during the Covid-19 outbreak. A range of commentators have criticised companies that have spent money on buybacks, leaving themselves financially vulnerable, and in some cases dependent on state support.
You would think buybacks would have dried up weeks ago, but it doesn’t seem everyone has got the message. Take Frasers Plc, formerly Sports Direct. On 20th March it released an RNS stating that it was monitoring the affect of the Covid-19 outbreak closely. It warned: ’the Board expects that COVID-19 will cause significant disruption to its business, including reducing customer footfall and therefore expects that Frasers Group will not achieve the range of guidance of 5 to 15% EBITDA growth (including House of Fraser but pre-IFRS 16 adjustments) previously given for the financial year ending 26 April 2020.’ Clearly a financial crunch ahead.
Also on 20th March Frasers released an RNS announcement stating that the day before it had purchased 341,560 shares at an average price of £2.24. That works out about £765,900. And looking back through other RNS announcements in March, it looks like Frasers has spent around £4.5m on buybacks just in the past month. This Monday, however, Frasers issued a further RNS announcement admitting its previous statement had ’substantially underplayed the effect of the COVID-19 virus on retail’ and stating that the buyback was suspended.
But Frasers isn’t alone. It’s been pretty obvious for some time that the crisis would hit airlines hard. Ryanair was still buying back its own shares last Monday (although EasyJet will take more flak for its £174m dividend). Other companies still spraying money at shareholders via buybacks over the past week include asset manager Standard Life Aberdeen and Standard Chartered bank, but there are plenty more. Oil giant Shell was still buying back shares until last Friday, before suspending its programme this Monday. Educational publisher Pearson also pulled its buyback on Monday.
We would be surprised to see many companies continue to plough on in the current environment.

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