European equities started the year on a positive note. The Euro Stoxx 600 returned 7.30% to shareholders year-to-date. An excellent start to the year after the ECB announced Quantitative Easing. Whereas many investors question whether European Equities are overbought, on the contrary, I am of the view that this is just the start. Although it is tempting to crystalize the gains, I would stay the course.

An indication that companies are expected to continue to do well is when they start announcing share buybacks. This involves a company buying back a portion of its outstanding shares.

Think of it this way – when you purchase a stock for your portfolio you make sure of two things; first, that the share price is trading below its intrinsic value and, second, that the company’s outlook is positive. Management go through the same thought process. Do not forget it is managements’ job to create value for shareholders and a buyback is one way of doing so.

A shareholder can look at a buyback the same way as a dividend because either way the company is distributing part of its reserves to shareholders. Personally, I prefer a share buyback to a dividend because it avoids the double-taxation issue seen with cash dividends.

A share buyback can occur both in a market selloff or after the markets have rebounded on positive news. The former is easier for an investor to understand. However, the latter is also important and advantageous for existing shareholders.

Critics do not understand that companies need to buy at higher prices also, as they try to offset employees exercising their options. When stock prices advance, more employees have in-the-money stock options and exercise them, while when stocks drop, employees hold back from exercising their options because they’re out-of-the-money.

Of the seven companies which announced a buyback this year, the following are three stocks which I believe should form part of portfolio:

Ryanair Holdings PLC – Ryanair last Monday said it would begin a €400 million share repurchase program as the budget airline once more lifted its earnings outlook for the full year while delivering a third-quarter net profit.

ASML Holdings NV – ASML, the Dutch semiconductor-equipment supplier, plans to spend €1bn over the next two years buying back some of its stock, mainly to cover employee share options. ASML, which employs over 14,000 people, also plans to raise its annual dividend by 15 per cent to €0.70 per ordinary share.

Next PLC – Next plc announced a share buyback which will not exceed 1,500,000 shares. The first day of any purchases was Monday 26 January 2015 and the last day will be Friday 13 March 2015. The Company's results for the year ending January 2015 will be released on Thursday 19 March 2015.


This article was issued by Kristian Camenzuli, Investment Manager at Calamatta Cuschieri. For more information visit, The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.