Share buybacks: This is how corporations want to support the stock exchanges in the future

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Zalando board members on the IPO in 2014:

The online retailer makes its shareholders happy by buying back their own shares

Photo: DANIEL ROLAND / AFP

Apple recently increased its share buyback program by $ 90 billion, the Google parent company, Alphabet, is up $ 50 billion, and the US bank JP Morgan Chase recently announced that it intends to acquire $ 30 billion of its own paper in the near future. These are just three of the many companies that want to use their positive business situation after the crisis to do good for their shareholders in the near future.

Many corporations are presenting strong business results from the past few months these days.

This clearly shows: The worst part of the Corona crisis is over in many places, companies are doing good business again and are also looking optimistically to the future.

Shareholders can also be pleased about this, because companies are currently announcing share buybacks against this background to an extent that has not been seen for a long time.

Take Zalando, for example: the online fashion retailer raised its annual forecast for 2021 a few days ago.

Reasons are the exceptionally strong growth in the first quarter of 2021, which will continue in the second quarter, and a stable outlook until the end of the year, according to the company.

The Zalando Management Board expects sales growth of possibly more than 30 percent for 2021 - and against this background has decided on a share buyback program: The company will acquire its own shares for a total purchase price of up to 200 million euros, Zalando announced.

US companies are planning share buybacks as they have not for 20 years

Such share buybacks represent an attractive alternative to dividend payments for companies, because they can be handled more flexibly: If the company is doing well, more of its own paper can be accepted, if things are not going so well, buybacks are restricted.

From the investor's point of view, share buybacks also have advantages: On the one hand, the number of shares of a company on the market decreases, which, assuming unchanged demand, is generally good for the share price. On the other hand, the company's profit is now only distributed over this small number of shares - the profit per share is therefore tending to rise.

Share buybacks are therefore a popular means of price cosmetics - and based on the announcements that corporations have made in recent weeks and months, a lot can be expected in the near future. According to the US bank Goldman Sachs, US companies alone announced buybacks totaling 484 billion dollars in the first four months of this year. That is the highest value for at least two decades, the "Financial Times" quotes the analysis of Goldman Sachs. The buybacks, so Goldman, could exceed the volume of the previous year by 35 percent in the current year.

In Europe, the enthusiasm for share buybacks in the boardrooms is not quite as strong as in the USA.

But it is definitely there.

The French bank Société Générale, for example, predicts that the repurchase volume on this side of the Atlantic can rise by around 25 percent compared to the level before the pandemic, according to the "FT".

An example: Last week the German real estate group Patrizia presented its quarterly results.

According to analysts, according to the Reuters news agency, the numbers were basically rather unspectacular.

However, the planned share buyback program was a positive surprise: Patrizia plans to take its own paper off the market for up to 50 million euros in the near future - the price of Patrizia shares spontaneously increased this prospect by more than 8 percent at times.

Toyota is investing 1.9 billion euros in its own shares

"Things are going better and companies have slightly better cash flow," said Howard Silverblatt, an analyst at S&P Dow Jones Indices, in the "FT".

"Before you had 1000 possible scenarios, now there are maybe only 100. It's a little easier there."

The management of the auto giant Toyota apparently sees it that way.

The Japanese announced a few days ago how well they are getting through the chip crisis that has been affecting the entire auto industry for months.

While other manufacturers - for example Volkswagen - fear an end to the recovery due to the lack of electronic components, the world's largest car company is forecasting an increase in operating profit of 14 percent to the equivalent of around 19 billion euros and a sales increase of 6.5 percent for this year .

The group would thus build on the level of the pre-Corona period.

As if that weren't enough of a good thing for the shareholders, Toyota also announced a share buyback program: the company plans to take shares worth the equivalent of around 1.9 billion euros from the market.

The announcement drove Toyota's share price up 2 percent on the same day.

Investors may thus have a foretaste of the coming months: If the corporations around the world put their buyback announcements into practice, this should additionally support the stock exchanges in the near future.

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