Aveng share consolidation confusion? Standard Bank’s Richard Hirsch explains

Standard Bank’s Richard Hirsch explains the implications of the Aveng 500:1 share consolidation that took place on the JSE today. Aveng was trading between 5c and 6c on the local bourse but after the consolidation, has settled around the R27.20 level, which would have previously been a share price of around 5.5c prior to the consolidation. The fundamentals of the business have not changed, the shares in issue have reduced significantly. If you owned 500 Aveng shares at either 5c or 6c, you would now own one share at the current share price of R27.20. The market value of the business hasn’t changed, simply the shares in issue. Many brokerages did not account for this correctly and your portfolio may have rocketed up incorrectly. – Justin Rowe-Roberts

On Aveng’s share consolidation

No, unfortunately, Mr Market doesn’t really bestow those gifts often. Unfortunately, what has actually happened with Aveng is that when it got to bid 5c, offer at 6c – pre the consolidation – if you had hundreds of millions of shares on the bid and offer. If people want to get in or out, you have to come across quite a wide spread. What I think they’ve done is quite smart in the sense that they’ve consolidated the stock at a 500 to one level. If you take a R25 share price this morning – where it pretty much opened – and divide that by 500, you’ll get to the 5c bid. What it has allowed people to do now is actually get out between R25 and R30, which is essentially 5c and 6c. But what’s happened is that people’s holdings have been reduced by 500 times. So, if you were holding 500,000 shares, you’re now holding 1,000 and that is basically what happened. But it has made it more liquid. And I think it’s a good thing, allowing people to get in and out of that spread.

On whether volumes are increasing as a result of the consolidation 

No, not as yet, because there were a lot of volumes going through before. As we said, 500,000 shares before only gets us 1,000 now. So no, the volume has most certainly reduced. I’m not saying it’s not trading, it certainly is trading. But it’s certainly not at the heights of the one you would see when it was at 5c or 6c before the consolidation.

On the type of investor the consolidation will bring 

Yeah, I would think. I mean, let’s put it this way: nothing’s happened to the company. Nothing has changed in the financials. All that has happened is the type of investor that it’s going to attract. Most certainly, I think it will change. I think you are spot on there. It’s different buying a share at 3c, 4c or 5c as opposed to R25 or R30. It can work either way for the company, but nothing’s actually changed with the company. Just maybe the profile of investors is probably going to shift away from the big penny stock-type of investor that was in it.

On whether new entrants at 6c have lost money 

Correct, well, it’s actually trading at 5.5c. So, at around R27.50. Bang in the middle. But I think it is allowing new entrants and participants that do participate in that market to get a fairer entry or exit into the stock. I don’t know if that was really behind their thinking or just optically it looks a lot cleaner to have a share that is trading at around R25 as opposed to 5c or 6c.

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