Seeboard's buy-back sparks REC share rises

NEWS of a share buy-back by Seeboard sent regional electricity share prices charging ahead again as investors anticipated a round of similar purchases by other distribution companies, writes Terence Wilkinson.

Regional electricity shares have risen more than 20 per cent this month as Offer, the industry regulator, announced more lenient price controls than expected.

Share buy-backs enable the companies to increase dividends more quickly, as the same total payment is divided among fewer shares. News of the purchase of 2 million shares at 425p sent Seeboard shares 17p higher to 437p and prompted rises elsewhere in the sector.

Eastern was the first company to buy back its shares when it bought 5 per cent of its outstanding equity in February. Because of this, it announced a 20 per cent final dividend increase, compared with an average of 15 per cent. All 12 regional electricity companies passed resolutions at their recent annual meetings to buy back up to 10 per cent of their shares.

Michael Cohen, analyst with Salomon Brothers, said that with buy- back schemes, real dividend growth could increase from 7 per cent to 10 per cent after March 1995.

'They have a lot of cash and not many opportunities to diversify and add value. Buy-backs enhance earnings and dividend growth, and because they are all worried about a possible takeover they will all have to follow suit.'