By November’s close, 98 companies had approved programs, marking a 20% increase over 2023
12/30/2024
Amid one of the leanest periods for stock offerings on the Brazilian exchange, banks are witnessing a notable surge in share buybacks within their brokerage divisions. With market valuations depressed and no clear signs of recovery, companies are ramping up efforts to repurchase their own shares, seeing it as the most strategic allocation of cash under current conditions.
A survey by Valor Data, based on data from B3, reveals that 98 companies approved buyback programs in the year ending November, a 20% increase compared to all of 2023. The figure surpasses 100 when including companies listed abroad, such as XP and Stone, which recently announced multi-billion-dollar buyback initiatives.
According to B3, the total number of active buyback requests—some approved in prior years—now exceeds 110 companies, approaching a financial volume of R$80 billion.
For instance, when calculated at their maximum allowed repurchase volumes, the combined buyback programs of B3 Exchange, Eletrobras, and JBS surpass the total raised through subsequent stock offerings this year. Excluding Sabesp, which alone accounted for over half of the R$25 billion offering volume in 2024, this underscores the broader impact of diminished market values across most companies.
An investment banker notes that many firms view buying back their own shares as the best investment option in an environment dominated by risk aversion. This sentiment has gained traction amid the ongoing cycle of interest rate hikes, further deterring investors from the equities market. “In some cases, we are advising clients that the most prudent investment is in their own securities,” the source shared, adding that controlling shareholders are also exploring financing options to purchase shares in their own companies.
Celso Nishihara, a partner in Fator Bank’s mergers and acquisitions division, highlights that share buybacks can serve as a strategic tool for boards to create shareholder value. Companies can improve financial ratios and reduce shareholder dilution by repurchasing shares, particularly if the repurchased shares are subsequently cancelled. This approach immediately boosts earnings per share. “A company understands its own stock better than any other asset; there’s no information asymmetry in this case,” he explains.
The Fator Bank executive emphasizes that while share buybacks can be a useful tool, they are not a substitute for a growth strategy. “It cannot replace mergers and acquisitions (M&A) or investments in a company’s core business,” he notes. Additionally, he cautions that companies must avoid over-leveraging to finance buybacks. Under current regulations, directors may approve share acquisitions only if the company’s financial situation allows for their settlement without jeopardizing obligations to creditors or the payment of mandatory dividends. Moreover, sufficient resources must be available for such transactions.
Vitor Rosa, from Scotiabank’s capital markets division, links the surge in buybacks directly to the undervaluation of shares. Currently, the price-to-earnings ratio is 7.6 times, significantly below the 10-year average of 10.6 times. Mr. Rosa advises companies to evaluate business growth opportunities alongside buyback programs.
Leonardo Cabral, head of investment banking at Santander Brasil, observes that well-capitalized companies see buybacks as an efficient way to utilize cash reserves. “The capital markets are not reflecting the fair value of companies,” he asserts.
Analyst João Daronco from Suno Research adds that companies with strong operational performance and robust cash generation are increasingly opting for buybacks. “It’s one of the options for allocating cash,” he explains, citing companies like Vale and B3 as examples. He also notes that buybacks could gain further traction if dividend taxation is implemented, as businesses might turn to this instrument as an alternative.
The companies referenced in this analysis were not available for comment.
*By Fernanda Guimarães — São Paulo
Source: Valor International