transaction in own shares

[mystical_ag]

Hi all ...

I've recently invested in a ftse 100 company that in undergoing a program of buying back it's own shares, to be held in it's treasury. Over the past one month, this company has undergone approx 10 transactions totalling in excess of 2,000,000 shares. Now holding approx 3% of their shares in issue. This company has also announced that it will continue with its share repurchase program during it's close period, i.e. over the next month.

Q1: Is there any common reason why any company would want to undergo transactions in it's own shares to this extent?

Q2: What is the expected effect on the share price over the next week(s)?

Q3: Am I right to sit tight with these shares, or is there something I should be worried about?


Any other advice welcome.

 

[kevinmcm]

Q1: Is there any common reason why any company would want to undergo transactions in it's own shares to this extent?

Q2: What is the expected effect on the share price over the next week(s)?

Q3: Am I right to sit tight with these shares, or is there something I should be worried about?

Any other advice welcome.

A1. Various reasons, surplus cash which is not needed at current time to expand the business. Reducing available shares in theory should create a supply/demand price rise, less shareholders more divi to go round etc. Depends on exactly what the transaction is.

A2. Not as clear cut as 'they are buying it will go up', look at BP recently, still transacting its own shares but the stock came off heavily during the May-June fall, around 18%. Long term that fall will not mean that much, but it is a good example of what can happen. In terms of weeks it is not a certainty that the stock price will rise.

A3. Depends on the company and how long you want to hold. Its not companies who are strapped for cash or struggling that commence buybacks, so from that point of view it should not be a worry at all.

Kevin.

 

[mystical_ag]

many thanks Kevin ...,

thanks for your answers / clarification.

your answers have been re-assuring, I think I'll sit tight with these shares for a while - or until the situation changes.

cheers!