Sponsors (AKFED) to buy $12m HBL shares again - why can't we see value?

August 02, 2023 (MLN): On May 2, 2023, Aga Khan Fund for Economic Development (AKFED) announced their first intent to buy HBL shares worth Rs3.5 billion. Until now the average purchase price is Rs75 per share and nearly 46 million shares are bought. In other words, 3.22% and 6.44% of outstanding sand-free float shares are already bought.

Today, they have announced to buy another lot of shares worth Rs3.5bn. That is some conviction and a show of confidence. 

Surprisingly, the first buying spree lasted less than two months to be quickly completed. The buyer is surely not trying to stagger the purchases and is grabbing value as he sees. Despite share prices going up nearly 50% to around Rs100 today, another buying intention is a clear sign of deep value stock.

Perhaps, it's a mere strategic view but surely based on sound fundamentals. 

Interestingly, this money is the one that was not able to be repatriated outside due to hidden capital controls. It can very well be a blessing a disguise and a reason why the dividend payout ratio is still low compared to peer banks such as UBL & MCB. By putting Rs7bn in HBL shares, AKFED joins the list of Engro & Lucky to express material confidence in their operations. 

HBL's latest results saw 2Q EPS of Rs8.86 per share with a token dividend of Rs2 per share. At around Rs220 per-share book value, the stock is still trading less than half the book value, which compared to the historical trend is pretty low. Perhaps, it could have been better if the bank itself announced a buyback and let current shareholders benefit as well (To recall: Bank Alfalah announced a buyback). 

Nevertheless, the management is putting money where the mouth is. Skeptics must evaluate whether the pessimism should turn into optimism after the current IMF deal.

Sponsors are clearly seeing value and accumulating more and more. Investors should do their due diligence and research before taking a shareholding in listed companies. It's risky but worth not regretting later.

The author is an independent economic analyst and writes on Twitter and Linkedin.