(Jamaica Observer) – GraceKennedy (GK) Ltd on Monday announced its intention to execute sub-division of its ordinary shares, or a stock split, three-for-one.
GK is the third company this year to move towards a stock split in a bid to capitalise on greater interest in the equities market from the investing public. The others are Honey Bun Ltd and Jamaican Teas Ltd.
Implementation of the stock split, the company said, is already board approved but will be subject to the approval of GraceKennedy stockholders at an Extra-ordinary General Meeting of the Company to be held on Monday, July 11.
GraceKennedy Group CEO, Don Wehby, in commenting on the stock split, explained that the stock would initially be split also by three. “Therefore, a stockholder with 100 stock units with a market price of $115.00 per stock unit prior to the split will, immediately following the split, have 300 units with an initial price of $38.33 per stock unit.”
He added that the split was expected to further enhance the market for the shares.
A broker with whom the Jamaica Observer spoke yesterday said that stock splits usually help companies to achieve more frequent trading and therefore approach a truer value of the company itself.
“Technically, the increase in the number of shares in issue via the split is to improve trading. In a small exchange like ours, stocks are closely held, especially by pension funds and not traded. Other investors who may want to own shares are therefore left out. Stock splits increase the level of trading and allow companies to move towards real valuation.”
“If a company is not actively traded, there is no real valuation,” he emphasised.
The broker said that when there is inadequate float (shares in issue), a shareholder or investment manager in need of cash might sell shares for much less than they are valued, causing price to fall. Alternatively, if there are enough units available, the shareholder will not need to sell at a depressed price.
With several splits occurring in the local market within the last 20 months, the broker said that some pension funds may now move to sell down their position. Investment managers and dealers, he said, will also now have more to sell. “Even the pension funds will consider taking profit,” he added.
Other recent stock splits include Honey Bun, which in April decided on a five-way stock split, with each ordinary share of the company subdivided into five shares. The split resulted in the authorised share capital of the company increasing from 97,500,000 shares to 487,500,000 shares, and the issued and fully paid capital of the company increasing from 94,253,390 shares to 471,266,950 shares.
CEO Michelle Chong said the subdivision was intended to improve trading activity for the company.
Effective June 1, the price for Honey Bun shares was split by 5. As on 30 May the price was it was $22 .00 per unit, this resulted in share price of $ 4.40. With unit price now nearing $7 each, the share has appreciated by 59 per cent since June 1, when the split was effective.
Jamaican Teas Limited’s two-for-one split was approved in March. As a result, authorised share capital was increased from 250 million shares to 500 million shares, and the issued shares were increased from 168,708,365 to 337,416,730.
Jamaican Teas share value was down 24.51 per cent year over year on Monday when the stock traded at $3.85 each.