By Jonathan Kent, Business Editor From Royal Gazette

BF&M Ltd has announced the first share buyback programme in the company’s history at a time when the company is trading at little more than half of its book value.

The programme, authorised by the insurer’s board of directors, will enable BF&M to buy back 500,000 of its own shares at its own discretion in Bermuda Stock Exchange trading.

This authorisation represents about 5.7 per cent of the firm’s total outstanding shares, which would cost around $8.15 million at BF&M’s closing share price of $16.30 yesterday.

Companies can effectively boost the value of their shares by repurchasing their own stock for cancellation, thereby reducing the total number of shares outstanding.

John Wight, BF&M’s chief executive officer, said in an interview yesterday: “The directors determined that the shares are undervalued and that this would be a good use of the company’s surplus capital.”

BF&M is trading at just 55 per cent of its 2015 year-end book value — an accounting measure of what the company is worth — which was $29.50 per share at the end of 2015.

Mr Wight said this was not an unusual situation for a BSX-listed company.

“It’s generally felt that there is not the level of liquidity on the BSX that is necessary to have proper values for local companies,” Mr Wight said. “This has been an ongoing issue for many years.

“The 60-40 rule, from which some companies are exempt and others are not, magnifies the issue.”

BF&M is one of the companies exempt from the 60-40 rule, which means the restriction of 40 per cent foreign ownership is lifted. It was granted the exemption in July 2013. However, since then there had been little noticeable impact in terms of attracting foreign investors, Mr Wight said.

“One of the problems is that BSX-listed companies are still an unknown quantity outside Bermuda,” Mr Wight said.

“That’s not an easy issue to solve, because Bermuda is an isolated island in the middle of the Atlantic and it’s difficult to get the word out to foreign investors that certain local companies provide excellent value.”

In 2005 BF&M’s net income was $16.9 million and its shareholders’ equity closed the year at $84.6 million. By 2015, BF&M had become a much larger company generating bigger profits. Its earnings had climbed 41 per cent to $23.9 million while its shareholders’ equity had more than tripled to total $257.5 million by the end of last year. And yet BF&M’s share price was trading nearly 12 per cent lower yesterday than it was at the end of 2005.

The insurer also offers a 5.4 per cent dividend yield at yesterday’s share price.

Only Butterfield Bank among BSX-listed domestic-board companies is trading above book value. However, Butterfield has also been buying back its own shares and is seeking more liquidity for its shareholders. Consequently it is exploring a potential listing on New York’s Nasdaq Stock Exchange.

Others, Bermuda Press (Holdings) Ltd and LOM Financial Ltd have share repurchase programmes in place.

The most undervalued company in terms of price to book is Ascendant Group Ltd, owner of electricity company Belco, whose shares closed at $4.41 yesterday, around 14 per cent of the company’s book value per share of $30.59, as at December 31, 2014.

Another frequently used measure of value is the price to earnings ratio. On this basis, according to BSX figures, Argus Group Holdings Ltd is the cheapest buy, trading at 5.3 times earnings, closely followed by BF&M at 6.4 times earnings, Ascendant at 8.3 times earnings and Butterfield at 10.9 times earnings.

IMAGE: Liquidity issue: John Wight, BF&M’s CEO, says his company’s shares are undervalued

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