Cebu Pacific spending P2B to prop up share price

Cebu Pacific [CEB 30.15, down 3.7%; 118% avgVol] [link] announced that its board of directors approved a P2 billion stock buyback plan that can apply to both CEB’s common shares and the convertible common shares [CEBCP 36.80, down 1.9%; 5% avgVol]. The board did not direct CEB’s management team on how to allocate the buyback capital between the two share types. If CEB allocated 100% of the buyback capital to the common shares, it would be able to purchase approximately 10% of its current outstanding common shares at the current price. If it put 100% of the money toward CEBCP, it would be able to purchase approximately 17% of the listed convertible preferred shares at the current price. According to the board, the purpose of this program is to “enhance shareholder value” and to “demonstrate confidence in the Company’s future prospects... through the return of a portion of the Company’s capital to shareholders.”

MB bottom-line: Any shares that CEB repurchases will be considered Treasury Shares, and those are not counted toward CEB’s outstanding shares. This means that any shares purchased are essentially “deleted”, and theoretically increase the value of the remaining shares by a marginal amount each time a new batch is purchased/deleted. Is this a good move? I’m sure there are a lot of different opinions, but for my money, the only reason I’d be invested in CEB is as a long-term income growth play, and burning cash on window dressing the stock price is not something I’d appreciate. I’d want the management team to be trimming every peso of unnecessary spending while plowing every remaining peso back into stealing marketshare from our rivals and building a foundation for multiples more of future income. But to each their own. 

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