On March 8, Gree Electric Appliances Inc.Of Zhuhai(000651) announced that the company plans to cancel 280 million shares previously repurchased through the secondary market, which will reduce the total share capital by 4.8%. In November last year, the company announced the cancellation of 101 million shares, and the total cancellation of 380 million shares twice will reduce Gree Electric Appliances Inc.Of Zhuhai(000651) total share capital by 6.3% compared with the beginning of 2021.
Since the second half of 2021, the depressed market has made many listed companies with “grain at home” speed up the pace of stock repurchase. Listed companies are actually reducing their total share capital by repurchasing and cancelling circulating shares, so as to improve the return on earnings per share. The behavior of shareholders is starting a prairie fire, which is an unprecedented new atmosphere in the history of a shares.
According to the statistical data of the reporter of China investment xiaohongshu, a securities firm, since 2021, more than 70 companies have cancelled their shares repurchased from the secondary market. The number of shares cancelled is about 4 billion, and the corresponding repurchase amount is about 30 billion yuan.
The initial case of repurchase and cancellation is actually Buffett’s classic investment – the Washington Post. The Washington Post is the first large repurchase company in the industry. From 1975 to 1991, the Company repurchased 43% of its shares at an average price of $60 per share. During this period, the company’s net income increased by 7 times, while earnings per share, that is, the cheese allocated to each pizza, increased by a full 10 times, and the Washington Post brought Buffett about 60 times.
Buffett’s current largest heavyweight stock, apple, also accelerated the rise of its share price through repurchase. Since the first quarterly report of 2012, Apple has used US $450 billion to buy back 38% of its shares. Although Apple’s net profit has only increased by 2.65 times in the past decade, Apple’s earnings per share has increased by nearly five times, and its share price has also increased by more than 10 times in the past decade.
The bull market of NASDAQ in the past ten years is actually the bull market of the five technology giants of “faamg” (FB, Amazon, apple, Microsoft and Google). The market value of apple is as high as $3 trillion, accounting for 5% of the weight of the whole Nasdaq, and the five technology giants account for 15% of the weight of the NASDAQ.
In addition to apple, other technology giants are also continuing to increase stock repurchase efforts. For example, FB has repurchased about $70 billion of shares in the past five years, and Microsoft has repurchased about $87 billion of shares in the past five years. Elephant dancing makes the NASDAQ easy to rise but difficult to fall.
market continued to be depressed, and A-Shares were repurchased and cancelled for the first time
The trend of stocks in traditional industries was sluggish in 2021, Gree Electric Appliances Inc.Of Zhuhai(000651) and other big white horse stocks plummeted by more than 30% annually, and the falling stock price also gave birth to the tide of listed companies repurchasing and cancelling circulating shares.
In 2021, Gree Electric Appliances Inc.Of Zhuhai(000651) totally cancelled 101 million shares, and the corresponding repurchase amount was about 6 billion yuan, accounting for 1.7% of the total share capital Midea Group Co.Ltd(000333) cancelled 72 million shares, with a corresponding repurchase amount of 5 billion yuan, accounting for 1.03% of the total share capital Yonghui Superstores Co.Ltd(601933) cancelled 390 million shares, and the corresponding repurchase amount was 2.7 billion yuan, accounting for 4.33% of the total share capital Gd Power Development Co.Ltd(600795) cancelled 1.815 billion shares, with a corresponding repurchase amount of 4 billion yuan, accounting for 9.24% of the total share capital.
Since this year, some listed companies are still vigorously promoting repurchase cancellation. On March 8 this year, Gree Electric Appliances Inc.Of Zhuhai(000651) again announced that it would cancel 283 million shares repurchased in the early stage, accounting for 4.8% of the total share capital before cancellation Gree Electric Appliances Inc.Of Zhuhai(000651) through two large-scale share cancellations, the total share capital of the company will be reduced from 6.015 billion at the beginning of 2021 to 5.631 billion, and the total share capital is expected to be reduced by 6.3% compared with that before cancellation.
The strength of repurchase and cancellation of listed companies can not be ignored. Some companies have repurchased and cancelled about 10% of their shares since 2021. Among them, the share capital repurchased and cancelled by Guangdong Dongfang Precision Science & Technology Co.Ltd(002611) , Haoxiangni Health Food Co.Ltd(002582) , Gd Power Development Co.Ltd(600795) and other companies ranks first.
get more cheese on each pizza
repurchase and cancellation how to enhance the value of shareholders
Readers can review Buffett’s classic investment in the Washington Post 50 years ago. The investment began in 1973 and disappeared from Buffett’s portfolio in 2009. According to the annual report of Berkshire Hathaway in 2008, the holding cost of the investment is $11 million and the market value is $674 million, which means that Buffett has earned more than 60 times the investment income on this investment.
After gaining the trust of Catherine, the former chairman of the Washington Post, Buffett began to put forward important suggestions that the Washington Post should buy back a large part of its own shares. Catherine thought it was crazy at first. If a company’s capital always circulates in its own wallet, how can it grow?
Buffett believes that the overall business growth rate of the company is not important, but the growth rate of earnings per share, which is like dividing a pizza less. If the company’s shares could be bought back at a low price (the Washington Post’s share price was very low at that time), each pizza would get more cheese.
The Washington Post is the industry’s first large buyback company. From 1975 to 1991, the Company repurchased 43% of its shares at an average price of $60 per share. During this period, the company’s net income increased by 7 times, while earnings per share, that is, the cheese allocated to each pizza, increased by a full 10 times.
The return on net assets of the Washington Post is Better Life Commercial Chain Share Co.Ltd(002251) up. When Buffett bought the Washington Post that year, its return on net assets was 15.7%, which was the average return of the newspaper industry, just a little higher than the constituent stocks of the S & P 500 index. But in less than five years, the post’s return on net assets doubled. For the next decade, the company maintained this honor, even reaching 36% in 1988.
Apple’s “God operation”
Buffett praised Apple’s repurchase in his letter to shareholders this year
“Our shareholding ratio is only 5.55%, up from 5.39% the previous year. This increase sounds like a piece of cake, but considering that every 0.1% of Apple’s earnings per share in 2021 is $100 million. We didn’t spend Berkshire’s funds to increase our holdings, and Apple’s repurchase worked,” he said
Over the past decade, Apple has been vigorously repurchasing its external tradable shares. According to the data in April 2012, Apple’s share capital was 935 million shares. Apple made a 1:7 share split in 2014 and a 1:4 share split in 2020.
Apple’s share capital has been repurchased for about 16.3 billion shares by the end of this year, which means that Apple’s total share capital has been 26.2 billion shares by the end of this year.
Statistics show that in the past decade, Apple has spent $450 billion on share repurchases and $110 billion on cash dividends. Apple’s earnings per share have increased by 4.61 times over the past decade, but Apple’s net profit has increased by only 2.65 times. The thickening of earnings per share comes from the reduction of share capital, which brings more “cheese” to shareholders. Over the past decade, Apple’s share price has also risen tenfold, far faster than its performance growth.
The real long-term value investors welcome the bear market, largely because listed companies choose to buy back and cancel their shares when the stock price is depressed, which not only thickens the shareholders’ earnings per share, but also avoids the dividend tax.
Duan Yongping, the Chinese stock god, began to hold heavy positions in apple after 2011. Duan Yongping believes that “Apple’s share price has fallen, but the profit remains unchanged. There are more shares that can be repurchased with the same profit. As a shareholder of apple, the consequence of falling share price is that the proportion of Apple shares held by him is high. Is there anything unhappy with this result?”
A-share investors have long valued a company’s growth rather than its ability to make money. However, if repurchase and cancellation can continue to become a common practice, for those companies that underestimate value, have strong profitability, have rolling cash flow, and are willing to return to shareholders, even if there is no growth, investors will not worry too much, because repurchase and dividends will promote the continuous rise of the company’s share price.
As Buffett said, “the last way we create value is to buy back Berkshire shares. Through this simple move, we have increased the share of many controlled and uncontrolled enterprises you own at Berkshire. When the price is lower than the value, this path is the simplest and most certain way for us to increase your wealth.”
