Samsung’s Recent Announcements Could Boost Its Stock Price
On Tuesday, Samsung Electronics (OTC:SSNLF) announced that it would take steps to improve its shareholder returns, while addressing some concerns surrounding its weak corporate governance, by proposing to boost its dividend and diversify its board of directors, while also appointing external advisors to review its complex ownership structure. [1] While the initiatives fall short of the changes that activist hedge fund Elliott Management called for last month, it could nevertheless enhance stockholder value. Below, we outline some of the key announcements by the company and how it could help from a valuation perspective.
Trefis has a $1,340 price estimate for Samsung Electronics, which is slightly ahead of the current market price.
See our complete analysis for Samsung
- Up 7% This Year, Will Halliburton’s Gains Continue Following Q1 Results?
- Here’s What To Anticipate From UPS’ Q1
- Should You Pick Abbott Stock At $105 After An Upbeat Q1?
- Gap Stock Almost Flat This Year, What’s Next?
- With Smartphone Market Recovering, What To Expect From Qualcomm’s Q2 Results?
- Will United Airlines Stock Continue To See Higher Levels After A 20% Rise Post Upbeat Q1?
Improved Shareholder Returns
Samsung says that it will pay out half of its free cash flows to investors over 2016 an 2017, meeting the top end of the 30 to 50 percent range that it guided for in 2015. This would mark a year-over-year increase in dividends per share of roughly 36%. Moreover, Samsung will use the remaining 50% of free cash flows towards share repurchases starting from the end of January 2017. This should boost Samsung’s return on equity, given that the firm’s cash position, net of debt, remains among the highest of its peers, accounting for 26.6% of its firm’s market cap. This is even higher than Apple’s net cash to market cap ratio.
Reviewing Corporate Structure And Governance
Samsung has an extremely complex ownership structure, which comprises of circular and cross-shareholdings involving other firms in the Samsung Group and the promoter family. This is likely to be a factor weighing on its stock price, given the corporate governance discount applied by analysts. However, the company says that it has appointed external advisors to review options to simplify its corporate structure, indicating that it could possibly create a holding company structure on the lines proposed by Elliott Management (related: Can Activist Investors Really Reshape Samsung?). The review is expected to take six months. Samsung also said that it would seek a new director with international experience to diversify its board, while forming a new governance committee.
Listing In International Exchanges
Samsung’s stock is currently only available via the Korean stock market, the OTC market or from the London market (as a GDR) and this has been limiting the company’s investor base, while potentially causing global investors applying a liquidity discount on the stock. For instance, Elliott noted that an average of just $300 million worth of Samsung equity is traded per day, despite its $220 billion plus market cap. However, Samsung noted that it will look into the possibility of listing its shares on additional international exchanges, in a move that could diversify its capital sources.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap<| European Large & Mid Cap
More Trefis Research