National CineMedia (NASDAQ: NCMI) stock will rise 1,000% at the open today. NCMI stock is not retracing past losses, sadly, this is a purely mechanical change in that price. As part and parcel of the emergence from Chapter 11 it’s necessary to make sure that the NASDAQ listing rules are being adhered to. Therefore there will be this technical change to bump the price 10x.
As to the company itself we’ve looked before at National CineMedia: “National Cinemedia (NASDAQ: NCMI) has been circling the plughole for some time now. The inability to meet debt interest payments - well, close enough - let alone debt repayments has most betting on a Chapter 11 filing soon enough. But it's also obvious enough that this is a capital problem. Add more capital and most of those problems can be solved. The underlying business seems OK, even if it could do with some brushing up. At which point enter AMC Holdings (NYSE: AMC) which has more capital that it knows, sensibly, what to do with. We can tell this from the way that a movie house chain invested in a gold mine like Hycroft. An absurd idea but they did it. Actually, one of the prime examples of people having too much capital to spend and why management should always be kept on a tight leash.”
We never did quite work out what AMC thought it was doing here. Chapter 11 led to a dilution, at best, of that stock position. Owning the debt would have given more power over the reorganisation.
National CineMedia stock price from Google Finance
The specific part of the problem being solved today. That stock price performance has meant that NCMI is well below the $1 minimum bid price to remain on NASDAQ. This is just a fashion thing - a cultural meme if you like. Penny stocks are somehow bad in the minds of the American financial markets. So, you can’t be a penny stock and also remain on a major exchange. This means that if you are a penny stock and you also want to remain on a major exchange you’ve got to do something.
That something is to declare that 10 old shares are now one new one. A 10 for one reverse stock split. This doesn’t change the value of the corporation, nor of any individual holding in it. It just changes the number of shares which makes each up - so, mechanically, the stock price moves the other way. Thus the 1,000%, or 10x, rise in NCMI stock this morning. This is both mechanical and purely nominal - it’s not a change in the real price at all.