# Normal Course Issuer Bid for Common Shares



## Bighairybeast (Feb 24, 2011)

I've just started doing some research on natural gas companies and one newer company I was looking at was PMT: Perpetual Energy.

The question I have is that they just issued a normal course issuer bid for its common shares where it can buy and cancel up 5% of its common shares for the period at a rate of up to 25% of the average daily volume. http://www.perpetualenergyinc.com/en/investor/april_25_2011_ncib.pdf

I'm having a hard time understanding if this is good for the investor (as they state in their release) and the full reasoning behind this. Can anyone explain the reasoning better for me and the implications of this possible large lump purchases with the shares subsequently being cancelled?

Thanks


----------



## HaroldCrump (Jun 10, 2009)

It is usually a term used for share buy-backs.
Essentially, they plan to buy their own shares from the open market and then cancel them.
It will reduce the number of outstanding shares and consequently, increase the EPS.
Usually, this is considered a good thing and the share price appreciates slightly as a result of such news and consequent action.

Keep in mind, that the company is under no obligation to actually buy back its stock simply because they've made this announcement.


----------



## canehdianman (Apr 7, 2009)

HaroldCrump said:


> It is usually a term used for share buy-backs.
> Essentially, they plan to buy their own shares from the open market and then cancel them.
> It will reduce the number of outstanding shares and consequently, increase the EPS.
> Usually, this is considered a good thing and the share price appreciates slightly as a result of such news and consequent action.
> ...


Harold is exactly right. Some people consider it a good sign for the company, as they have sufficient faith in their business that they think buying their own shares is a good investment. Others are more pessimistic and feel that it shows that the company can't find anywhere better to invest their money. Personally, I find it to be a good sign.

It costs the company a bit of money to have their lawyers draft the NCIB as well as file it with the stock exchange, so it is likely that they do at least *intend* to buy back the shares, but there is no requirement for them to do so. They can let the NCIB expire without buying back a single share.


----------



## Bighairybeast (Feb 24, 2011)

Thanks for the replies. Being a new investor I was just concerned with the companies intentions and how they would be viewed. It makes more sense to me now.


----------



## andrewf (Mar 1, 2010)

I don't know why people think it would be a bad sign. It suggests that management thinks the share price is too low and that there is a high rate of return to buying back shares.


----------



## Bighairybeast (Feb 24, 2011)

TD Waterhouse has PMT listed as a "moderate sell" which was part of the reason I was concerned, but I have been unable to find out how often they update their recommendations.


----------

