Investors brace for wave of share buybacks from UK companies

The UK is on the cusp of a “regime change” in corporate attitudes towards share buybacks, Panmure Liberum analysts have said.

Looking through financial statements, Panmure Liberum analysts Joachim Klement and Susana Cruz found that mentions of buybacks have risen 144 per cent over the last year for FTSE 100 companies, with a 79 per cent spike just in the last quarter.

The trend is even more radical for stocks on the mid-sized FTSE 250 and FTSE Small Cap, which have seen mentions of buybacks rise 323 per cent and 408 per cent respectively in the last year, with 161 per cent and 189 per cent coming in the last quarter.

In contrast, Stoxx Europe companies have only seen an 80 per cent rise in the last year and a 12 per cent jump in the last quarter.

The S&P 500 posts even poorer numbers, with an eight per cent rise in the last year and a whopping 29 per cent fall over the last quarter.

Indeed, buybacks were the most commonly mentioned topic in financial statements and earnings calls, both in Europe and the UK, despite the regions having far less of a tradition of share buybacks.

Historically, the US has been more of the home of the buyback, with the UK preferring to issue dividends instead, but in the last couple of years, UK companies have been far more open to the practice.

UK companies bought back an average of £18bn in stock a year between 2012 and 2019, but by 2022 that number was over £50bn.

In contrast, the US has actually seen buybacks decline, with the S&P 500 buyback yield falling from two per cent at the start of the year to just 1.6 per cent.

While there are fear over buybacks becoming aggressive and diverting funds from better investments, this is not an issue currently as buyback yields for UK stocks are still relatively low, sitting at 2.4 per cent for the FTSE 100 and 1.4 per cent for the FTSE 250.

“These buybacks provide significant support for what is still an undervalued stock market in the next twelve months,” said Klement and Cruz.

In fact, the analysts’ research showed that every single sector in the UK is at a discount to their US equivalents, with the British energy sector being close to a massive 75 per cent discount to its American counterpart.

This is despite UK small and mid sized stocks being the best performing asset class over the last six months.

Over the last 12 months, the FTSE Small Cap index has grown 19.2 per cent and the FTSE 250 has grown 15 per cent, compared to the FTSE 100’s 12.5 per cent, with international markets doing even worse.

The S&P 500 is up just 10.5 per cent in the same time, the Nasdaq up 9.2 per cent and Stoxx Europe up just 7.2 per cent.