AML chairman gives reasons for share buy back
Rumors that a bid from a competitor has been made for a controlling interest in AML Foods Limited(AML)were not behind that company’s recent announcement of a buy back of up to 10 percent of its outstanding shares over a three year period.
Dionisio D’Aguilar, chairman of AML, while not renouncing the rumor outright, toldGuardian Businessyesterday that the decision to announce the share buy back had been under consideration for years, and was intended to be a catalyst to address illiquidity in the market and a share price he called significantly undervalued.
“People express an interest, anyone can express an interest but the mechanics of it are quite difficult,”D’Aguilar said of rumors of a bid to take a controlling stake in the company.”In addition to that we hear rumblings now and then, and our reaction, the fact that we are attempting to buy the shares I think I can say without fear of contradiction, we have tossed around in our boardroom for well over two years now.”
BISX-listed AML’s share price closed at$0.97 on Monday. The company has 15,404,170 shares
outstanding, according to D’Aguilar. Ten percent, or 1,540,417 shares, at today’s share price represents just under$1.5 million in value. D’Aguilar said that under BISX rules the intention to acquire the shares must be made public, though there is actually no obligation to acquire any shares.
The move, according to D’Aguilar, was motivated to maintain shareholder value and to increase earnings per share, as this calculation is made based on the number of shares outstanding. He said the announcement was a good way to protect shareholder value as an illiquid market can have a single trade cause a low refection of the share price.
“Given the illiquidity of the market your share price can be severely depressed because there’s just not much trades going on and you get one person who needs to pay off a bill or has a birthday… and they sell 1000 shares and that drives your price to an unreasonably low amount,”D’Aguilar said.
Any funds used for the buy back may impact upon AML’s announced plans for its expansion into Western New Providence with a Solomon’s Fresh Market store. However, D’Aguilar said that given AML’s cash flow and the fact the company has no debt, it is in a very comfortable position to do both if necessary.
“We prefer for the market to do it and allow us to direct our resources elsewhere,”the chairman said,”but we have a duel function. One is to generate profits, and the other is to maintain shareholder value, and we feel they can go hand-in-hand.
“I think that once we start to tickle the interest of everybody, then the market will take over and we will just be the catalyst to some activity in our stock,”D’Aguilar said.”I don’t think the need will arise for us to go out and buy any more than what we say we’re going to buy.”
Despite having no debt presently, D’Aguilar said that the company is prepared to borrow money to fund share acquisitions if it became feasible to do so. He said if the company decided to use such financing, it could be assumed that borrowing would be done at prevailing market rates, currently between 7 to 8 percent.
D’Aguilar said that he believed the liquidity problem in the market was due to the way Bahamians traditionally approached investing, tellingGuardian Businessthat he thought more than 95 percent of the population does not participate in the trade of shares, prefering traditional investments such as real estate, fixed deposits, and insurance products. Saying that Bahamians are still old fashioned in their investment choices, he said the mindset is a cultural impediment to an active market for shares, which represented greater uncertainty in returns.”Bahamians hate the uncertainty of a return,”he noted.
The Solomon’s, Domino’s and Cost Right brands in The Bahamas all fall under the AML Food Limited umbrella. D’Aguilar said the food store business was a difficult one, involving many of the more challenging aspects of business including large staffing requirements, large and varied inventory, logistical challenges, and merchandising among other issues.
“Its a tough business to get right, but once you get it right, you do alright,”said D’Aguilar.”That’s where we are now.”