Is There Any Value In Float and Share Buyback Analysis For KLSE's Counter : on Public Bank and Sapcres

Float/ analysis can be included as another variable in forecasting algorithm. The percentage of shares available to the public public becomes a criteria with the premise that the smaller the float, the 'easier' the counter to go up. Assuming the float now is 15%, this make the available share to the public is small which subsequently cause the price to go higher. But does it really works?

Note:The term "float analysis" was made famous by Steve Wood. There some computation in calculating the float if based on Steve Wood's "float analysis". Here, I am just referring float simply as the percentage of shares available to the public. Before that William O' Neil (on of those included in Market Wizard) already include float the public"percentage of ownership" as one the criteria in his famous SLIM method. According to him : all other factors being equal, a company with a smaller number of shares outstanding can see its stock move higher much faster than a company with a larger capitalization. The relationship between 'float' and 'share buy back': when there a buy-back by a company, the 'float' become smaller. Float figure you can get from certain stockbroking analysis newsletter and for buy-back announcement get them from local newspaper's financial section weekly column.

For KLSE, one good example is how since mid of 2004 until early 2005, Public Bank aggressively buying-back their share causing the price to go higher and higher (float become smaller and smaller causing the share available to the public become less and less). Since they are insider (management/major shareholder); they know their company well before the public really know; turned out they were coming with good financial figure release & with a very good dividend pay out. This make Public Bank as one the 2004 top star performer. This case should make it as a buy-back classic.

Be warned though, buy-back is typically just a normal share exercising activities, e.g. for the company to pick up outstading shares. In Public Bank case above, the aggressive buy-back exercise was well publicized. Also, sometimes a company "buying back" to support the counter, avoiding the counter to slide further in a fast downtrend (good move anyway, if the public don't want the counter then who else should support it). But then, does when the company hold a lot of their own share mean there are going to be a good news or good announcement or financial release especially when they are the insider? For blue-chips maybe okay but how about for smaller counters. Can we use float and buy back as the criteria? Maybe not and maybe most of the time are not. Small float and recent buy by insider could easily mean the insider are ready to dump their shares! Many examples you can find.

Reason; maybe because they are holding a lot and it's time to make money (or use for company expansion), or maybe to stir interest (read: manipulate). Reasons is not that important but the effect. If the insider start selling then you know what will happened.

If you read my post on Sapcres previously, I did include float figure as the criteria. At that time the float figure was 24.1%. Sapura Technology (insider) also buying that time. Also, at that time, many stockbroking's analysts rated Sapcres a buy. Thought I could use float,recent buy-back and stockbroking fundamental analyst consensus as part of the analysis. But then, the counter went down further and further. If you are a technical based trader/investor then you should know which price level to get out. If based on financial/fundamental data then you need next quarter financial release, anyway its already out and it's below expectation. And the funny thing, currently market analyst says it still a buy; "SapuraCrest is currently trading at inexpensive valuations" says one analyst. Ha,ha, of course when everything else maintain and only the price decline, then it become more and more inexpensive - that financial analysis way anyway, to find undervalued stock . Anyway, to be listed in the main board next year is the only consolation that I can find now for Sapcres and of course some media-play on this event well expected.

Conclusion: Maybe the value of forecasting of 'float' and recent 'share buy-back' depend much on the company's management itself. How well you know the management of the company that you invest in?BTW, Arab Malaysian Research House did inquiry Sapcres on the sell down. According to the AmResearch newsletter (14Dec05) : "Management (Sapcres) has been unable to provide us reasons for the sell down of the Companys stocks since end-Oct 2005, a hefty 30% decline from RM0.90". Well, after reading this, do you need reasons anymore?

Checkout RHBRI-051214-RHB Highlights on for Oil & Gas Sector and also Sapcres. Checkout AMR-- highlights for Sapcres. Get the download at Bursa Malaysia research download