The share price of JSE-listed construction and engineering group Aveng rocketed by more than 45 000% for a period of time on Wednesday.
This steep appreciation in Aveng’s share price is related to the restructuring of the group’s authorised and issued share capital through the consolidation of every 500 shares into one share, effective from the opening of trade on the JSE on Wednesday.
The share consolidation resulted in the 62.26 billion issued Aveng ordinary shares being reduced to 124.5 million shares, while 2.47 billion issued Aveng A class shares declined to 4.9 million A shares.
Aveng’s shares were later on Wednesday reflected as having declined by 9.37% to close at R27.19 per share compared to its R30 per share closing price on Tuesday.
Rowan Goeller, an analyst at Chronux Research, said the over 45 000% increase in Aveng’s share price and subsequent decline resulted from a share price adjustment going back in Aveng’s history to reflect the lower number of Aveng shares in issue following the share consolidation.
No longer a penny stock
Goeller added that Bloomberg’s fact set will, for instance, not now be showing the 3 cents, 4 cents, 5 cents or 6 cents per share that Aveng shares have been trading at during the past year but, depending where the share price was, will be at R25 to R30 per share.
Aveng group financial director Adrian Macartney announced on August 31 that the group planned to undertake a share consolidation before the end of 2021 to reduce the more than 60 billion Aveng shares in issue.
The massive number of Aveng shares in issue follows several rights issues by the group over the past few years to repair its balance sheet as part of the strategy to return the group to profitability.
The announcement of the planned share consolidation coincided with the publication of Aveng’s financial results for the year to end-June 2021 and the group reporting its first full-year headline earnings – as opposed to a loss – since June 2014.
Shareholders in Aveng approved the special resolutions related to the share consolidation by the required majority at a general meeting of the company on November 10.
Aveng provided a rationale for the share consolidation in a circular published and circulated to its shareholders prior to the general meeting to approve the then proposed share consolidation.
It said the consolidation was being proposed because in the opinion of Aveng’s board:
Shares that trade below R1 have a much higher spread between the bid-to-buy price and the offer-to-sell price, which can result in significant movements in the share price on small volumes traded and in turn causes instability in the market capitalisation of the company – and ultimately affects shareholder value. This may therefore discourage potential investors.
By consolidating the number of shares, it is expected that there will be a narrowing of the spread between the bid-to-buy price and the offer-to-sell price, resulting in a more stable market capitalisation of the company and allowing for increased liquidity in the shares.
Aveng added that the share consolidation will:
Provide additional confidence to existing shareholders.
Increase the attractiveness of the company to potential investors.
The prospects of Aveng post the share consolidation appear to have been appealing to at least one Aveng director.
Aveng disclosed on November 23 that Bernard Swanepoel, one of the group’s directors, had acquired 5.9 million Aveng shares at R0.05 per share for a total purchase price of R295 000 on the market on November 22.
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