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Buybacks Uncovered
In the past few months, we’ve seen several companies launch share buyback programs—and you’re probably wondering: what are these programs?
Simply put, a share buyback program is when a company announces that it will repurchase a portion of its shares from the market over a specified period.
Companies such as Edita, Arabian Cement, and Madinet Masr have recently initiated these programs. But the big question is: why?
Purpose of repurchasing stock:
There are a few reasons why many companies start a share buyback program each year, such as:
Signaling Confidence
When a company announces a share buyback, it’s often seen as a strong signal to investors and the market that management has confidence in the company’s future.
It suggests that they believe the stock is undervalued and are willing to put money behind that belief. In some cases, it can also hint that the company is working on something new or promising that could positively impact its future valuation.
Boosting Share Value
Share buybacks are often viewed as a bullish move. By reducing the number of shares in circulation, a company effectively increases its earnings per share (EPS)—the same earnings, fewer shares, which can make the stock look more attractive to investors.
As a result, increased demand may push the stock price higher, benefiting both the company and existing shareholders.
A way of paying back their investor
Instead of paying dividends, some companies choose to return value to shareholders through share buybacks.
This approach is often more flexible, as it doesn’t create long-term expectations like regular dividends do.
By reducing the number of shares in circulation, each remaining share represents a larger ownership stake, which can enhance shareholder value over time and support the stock price.
Does it have an effect?
In August 2022, Edita announced that it would repurchase 36.2 million shares, representing approximately 5% of its total shares, over two months.
The program was expected to cost around EGP 295 million, based on the stock price at the time. Here’s what happened after the program concluded:
As you can see, Edita’s stock price rose from EGP 3.58 to EGP 4.48, marking a remarkable 25% increase in just two months following the buyback announcement.
In 2025, Santander announced a major share buyback program worth €10 billion to be executed over two years (2025–2026), using its strong capital position and excess reserves.
The program aimed to reduce the number of outstanding shares, thereby increasing each shareholder’s stake and enhancing earnings per share.
As a result, with fewer shares in circulation and the company’s value remaining steady, the share price had room to grow.
The buyback effectively allowed each shareholder to own a larger portion of the company, delivering added value through improved EPS, higher stock value, and greater ownership.
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