Flow Capital: A Strategic Share Buyback

Flow Capital Corp. (TSXV: FW) has announced a normal course issuer bid (NCIB) for up to 2,598,100 common shares, representing approximately 10% of its public float. This strategic move suggests that Flow Capital believes its shares are undervalued and that repurchasing them will enhance shareholder value. But what exactly does this mean for investors, and how does this bid align with Flow Capital's broader strategy?

Firstly, let's address the elephant in the room: why would a company buy back its own shares? The most straightforward answer is that Flow Capital believes its stock is undervalued. In other words, the company thinks its shares are trading below their intrinsic value, making this an opportunity to acquire them at a discount. By repurchasing shares, Flow Capital can reduce the number of outstanding shares, which can increase earnings per share and potentially boost the stock's value.

But why now? Flow Capital's decision to initiate the NCIB could be seen as a vote of confidence in the company's future prospects. The company has engaged Canaccord Genuity Corp. to act as its broker for the NCIB, indicating that it has the financial capability to execute the bid. Moreover, Flow Capital has entered into an automatic purchase plan (APP) with the broker, providing a set of standard instructions for purchasing shares under the NCIB. This demonstrates that the company has a clear strategy for the buyback.



Now, let's take a closer look at Flow Capital's financial performance. In 2022, the company reported a cash flow from operations of CAD 3.5 million and a profit margin of 11.2%. These figures suggest that Flow Capital is in a strong financial position, enabling it to fund the NCIB. Furthermore, the company's debt-to-equity ratio has decreased over time, indicating improved financial health. In 2019, it was 2.11, but by 2021, it had fallen to 0.78. This reduction, combined with a strong cash position (over $22 million in 2021), enhances Flow Capital's ability to execute the NCIB without straining its financials.

But what about the potential knock-on effects of the bid on the company's liquidity and financial flexibility? While the NCIB may slightly reduce the company's liquidity as cash is used to purchase shares, the cancellation of the repurchased shares could potentially tighten the company's financial flexibility, as fewer shares available for issuance may limit the company's ability to raise capital through equity offerings in the future.

In conclusion, Flow Capital's normal course issuer bid is a strategic move that aligns with the company's belief in its undervalued stock and its confidence in its future prospects. The bid is well-supported by the company's financial performance and indicates a commitment to enhancing shareholder value. However, investors should remain vigilant and monitor the company's progress, as the impact of the NCIB on Flow Capital's liquidity and financial flexibility remains to be seen.