Buyback Wednesdays – Infosys Announces $1.13 Billion Share Buyback

Buyback activity followed a similar pattern last week with only 6 companies announcing their buybacks. Orchid Island Capital (ORC) topped our list with a buyback that represents 13.8% of its market cap, followed by a $14 billion additional buyback by Lockheed Martin Corporation (LMT) which represents around 12.2% of its market cap at announcement. LMT  also increased its quarterly dividend by 7% to $3.00 per share.

The $1.13 billion buyback by Indian software services company, Infosys Limited (INFY) stood out last week. Infosys is a global consulting and IT services company that is present in 50-plus countries and has over 1,800 clients. Infosys continued its acquisition spree this year to strengthen its presence across Europe, Germany, and Northeast Asia.

On October 13, 2022, Infosys announced a buyback and declared a quarterly dividend of $0.20 per share. This is the fourth buyback announced by the company since its IPO in 1993. The first buyback was announced on 16 Aug 2017 through a tender offer. With a payout ratio of 59%, the company has additional room to increase its dividend or allocate more capital to buybacks in the future.

Infosys reported its Q2 FY ’23 financial results with revenue of $4.55 billion, a 14% Y/Y increase. Infosys’ digital segment contributes nearly 61.8% of its overall revenue and grew by 31.2% year-on-year in constant currency. The company’s balance sheet continues to remain strong with $2.47 billion in net cash. Free cash flow for the quarter was $589 million. ROE increased by 1% year-on-year to 30.7%. Net income margin of 16.90% is impressive considering gross profit margin is just 30.20%. Infosys’ earnings have grown by 5.5% per year over the past 5 years. Employee count last quarter increased by approximately 10,000 to 345,000. Attrition declined by 2.5% this quarter.

Infosys signed 27 large deals in Q2 with a Total Contracting Value of $2.74 billion. Shares of Infosys fell 27.6% YTD and the stock trades at a forward PE of 25.19 and a forward EV/EBITDA of 17.24. Pricing power, a reversal in currency tailwinds and a global recession reducing the need for consulting services are all challenges the company is likely to face in the near future.

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