DBS stock rallied on issuing of $1billion perpetual securities

It is the return of DBS stock. On 21 September 2018, DBS stock surged to a month’s high to reach $26. The performance of DBS stock is remarkable, given that the counter rose by 7% within 10 days. The rally followed the recent issuance of $1billion perpetual securities.

While DBS stock is still some way off the record high of $31 seen on 31 April 2018, recent data suggested that DBS stock may have been oversold. It is still too early to suggest that DBS stock price is poised for another bull run but recent recovery was supported by several factors.

As the bellwether of the economy, DBS stock price is obviously very volatile and sensitive to market conditions. Thus, I view DBS stock more of a growth stock instead of looking at it from a dividend stock perspective. In this regard, my opinion is that this counter is good to invest, but not ideal to invest and hold. Due to the volatility of bank stocks, the key to making money out of DBS stock is to set appropriate entry and exit strategies.

DBS stock

Then again, there are many critics who may argue that I should not advocate short-term investing or even trading. Well, to each his own. As far as I am concerned, the golden rule when it comes to investing in stocks is don’t lose money. There are numerous investors who chose to buy and hold stocks but ended up catching a falling knife.

$227 million shares buyback

In my previous article, “DBS share price lost gangbuster form” I wrote that it is not the style of DBS management to resort to shares buyback to prop up share price. Prior to the recent correction, the bullish form of DBS share price in the past two years was built upon solid business fundamentals. Revenue grew from $9.17 billion in FY2014 to $10.38 billion in FY2017 while net income increased from $4 billion to $4.3 billion in the corresponding period.

In my point of view, the motivation for the recent aggressive shares buyback should be to enhance Return on Equity (ROE). While business had improved in the past few years, the Return-on-Equity (ROE) had actually declined, falling from 10.7 in FY2014 to 9.3 in FY2017. This is the lowest among the three banks as OCBC recorded ROE of 10.8 while UOB’s was 9.7. The falling ROE stood out like sore thumb for DBS, so I guess the management resorted to buying back shares from the open market in a bid to improve the performance metric of the management. Given that DBS stock had fallen a fair bit in recent weeks, this was indeed time opportune to buy back DBS stock at reasonable price level.

On 6 July 2018, DBS kick-started the shares buyback mission. For the past three months, DBS spend a colossus sum of $227 million to buy back 9 million shares. This is a huge amount of monies and provided the basis for the recent DBS stock [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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