Sponsor-directors of some companies have purchased or have declared to purchase shares of their own firms at a time when investors have shown reluctance to put money in the stocks.
For example, three directors of Square Pharmaceuticals, announced last week their decision to buy 3 million shares in total, the market value of which will be more than Tk 625 million at the current price of Tk 209.8 each share.
A sponsor-director of Apex Footwear, a nominated director of BRAC Bank, and sponsor-directors of Acme Laboratories, ACI, Pubali Bank, and Eastern Housing purchased their own companies’ shares in recent months.
“We can take this as a positive signal, as most of these companies have been doing better [than their peers] despite economic challenges,” said Salim Afzal Shawon, head of research at BRAC EPL Stock Brokerage, a top-tier brokerage firm.
The stock market has been in bear grip for more than a year as floor prices discourage both foreign and local investors to put fresh bets on equity securities.
Buyers keep away from the market, apprehending a further reduction in stock prices if the price restriction is withdrawn.
But market experts say that it is a sign that sponsor-directors of the companies consider the stocks undervalued when they are keen on raising their stakes in the organisations by buying shares from the market at the floor price.
“It indicates that they have confidence in the prospect of their companies,” said Md Sajedul Islam, outgoing senior vice president of the DSE Brokers Association of Bangladesh.
The stock of Square Pharma has remained stuck at the lowest price set for nearly a month after some ups and downs since July 11. The pharma company, the best in the sector in terms of revenue and profit growth, has seen a lack of buyers since the regulator set the minimum price for every stock in July last year to stem free fall of the index.
The drug maker is one of the good performing companies that have been struggling to move up the floor price, despite its record earnings results for FY23 and then the latest quarter.
Square Pharma recorded the highest-ever quarterly profit in July-September this year, riding on a double-digit sales growth. Sales of dengue-related drugs boosted the revenue.
Its profit jumped 9.10 per cent year-on-year in the quarter to the end of September, while the sales growth was 15 per cent to Tk 18.46 billion in the quarter, compared to the same quarter last year.
Square Pharma in FY23 earned around Tk 19 billion, the highest annual profit in its history. It declared the highest-ever 105 per cent cash dividend for the year.
According to a stock market disclosure, the directors of the company will complete the purchase of 3 million shares within a month.
“Sponsors have better insights into the operations of their own companies. A buy declaration from them can be taken as a signal of better future performance and/or current undervaluation,” said Mr Shawon.
As per the last week’s disclosure, Samuel S Chowdhury, one of the directors of Square Pharma, expressed his intention to buy 1 million shares from the main and block market.
Two other directors— Tapan Chowdhury and Ratna Patra — also declared their intention to buy 1 million shares each through trading on the stock exchanges.
Last year, four directors of the drug maker together purchased 0.9 million shares. The market was downbeat at that time as well.
Syed Manzur Elahi, one of the sponsor directors and chairman of Apex Footwear, the country’s largest shoe manufacturer, bought 38,500 shares through public trading last month.
He had purchased 175,861 shares in four phases in January this year.
Increasing stakes in the companies by sponsor-directors indicates that the company’s future is bright, according to experts.
The trend is visible in blue-chip companies, some of them are popular household names, which have been successfully navigating macroeconomic challenges and maintained growth.
Sponsor-directors believe the current market price is not the fair price.
“That’s why they are increasing their stakes in their companies,” added Mr Sajedul Islam, also managing director of Shyamal Equity.
The stock of Apex Footwear closed at Tk 257.90 on Wednesday. The country’s leading shoemaker witnessed record sales and sales growth in FY23, supported by higher export and domestic sales.
Apex Footwear’s export soared more than 35 per cent year-on-year to Tk 7.14 billion while domestic sales jumped 22.25 per cent to Tk 9.40 billion in FY23.
Asif Saleh, a nominated director of BRAC Bank, bought 30,800 shares of the bank in June this year. BRAC Bank registered a 39 per cent increase in profit to Tk 5.81 billion in the nine months to September this year.
share purchase bear market square pharmaceuticals brac bank eastern housing