Sygnus Credit Investments is taking some of its shares back from investors. What’s going on and what will a buyback mean for Sygnus investors?

I’m Kalilah Reynolds, financial journalist and educator based in Jamaica. Let me explain.

Sygnus is a Jamaican investment firm that provides private credit and “alternative financing” mostly to medium-sized businesses.

The company listed on the Main Market of the Jamaica Stock Exchange in 2018.  But its stock price hasn’t been doing so well.

SCI has been trading between $11-$12 dollars for a few months now.  Its 52-week high is $17.50. 

During its recent annual general meeting, the company’s bosses said the stock’s current price doesn’t reflect the reality of the company. They believe it’s undervalued.

So, they’ve decided that the company will buy back US$1 to US$3 million worth of its shares every year for the next three years.

This is expected to boost the stock price.  How, you may ask?  Well, as with most things in business, it comes right back to supply and demand. 

When SCI repurchases this chunk of shares, less will be available for investors to trade publicly on the stock exchange. The fewer shares available for trading, the more valuable the ones that are available will become. And this will likely drive up the price.

Let’s use an example we can all relate to.  Let’s say under normal circumstances, tomatoes are usually between $50-$80 per pound.  But one day, somebody go and buy up all the tomatoes from all vendors at the market!  So now you have to go drive round and round town to find tomato.  You found ONE person who has tomato selling, but when you get there, so many people are trying to buy the few tomatoes that she has.  What do you think the vendor is gonna do?  Raise the price! 

Scarcity causes prices to go up, and that’s exactly what Sygnus is trying to do with its stock prices.  Not for any nefarious reason, just that they believe the price is greatly undervalued based on the company’s performance.  I actually don’t mind that they seem to care about their shareholders.  Because there are other companies that seem to not care at all.  NCB comes to mind.  Their stock price has plummeted, dragging down the whole market and they haven’t really done anything about it.  To make it worse, they’re still not even paying consistent dividends to shareholders.

But back to Sygnus. Where will they get the money to buy back all these shares?  The company said it would pay for it through cash flow from its business expansion and debt. 

SCI’s board still has to decide when the buyback will begin, but as I said, it’s expected to continue for three years.