Synthomer (LON: SYNT) shares are up 1,900% today. Also, SYNT shares are down 5% today. Both of these statements are true. But they are true of different types of numbers. One is a nominal share price change, the other is a real share price change. As it’s real price changes that alter the weight of our wallets that’s the one we should really concentrate upon. We could also note the amusement that the aim of the nominal price change is to produce and increase, not a reduction, in the real share price - so, that worked well then, eh?
The announcement from Synthomer itself: “As part of the Capital Reorganisation, the Existing Ordinary Shares have been consolidated such that Shareholders will receive Consolidated Ordinary Shares on the Consolidation Ratio of 1 Consolidated Ordinary Share in substitution for every 20 Existing Ordinary Shares. Following Consolidation, the Consolidated Ordinary Shares have the same rights as the Existing Ordinary Shares, including voting, dividend and other rights. Immediately following the implementation of the Capital Reorganisation, it is expected that the market price of a Consolidated Ordinary Share should be approximately equal to a multiple of 20 times the market price of an Existing Ordinary Share immediately beforehand. Existing Shareholders will own the same proportion of the Company as they did immediately prior to the implementation of the Share Consolidation, subject only to fractional rounding.”
Synthomer share price from Google Finance
The background here is that we humans are often enough subject to the number illusion. This is why prices end in 99p, £3.99 and so on. We don’t, quite, think of numbers properly. In stock markets this is taken to mean that we’ve got an idea of what a share price “should be”. A nice proper company will have a share price in the “” to “” range. What’s in the quote markets differs across markets. For the US it’s $10 to $100. Here in London £1 to £10.
So, the thinking goes, if we’ve got a share that’s terribly low priced perhaps we can increase the real value of it by getting that nominal price into that right range - that price range where solid and respectable companies are? This might sound a little silly but it’s worked often enough that people still do it.
And that is what Synthomer has just done, as they explain. The value of the company hasn’t - not directly - changed only the number of shares. Therefore the share price should, as a result of this consolidation (a reverse share split to Americans), jump 20x.
As it happens the price hasn’t jumped 2,000%. It has jumped 1,900%. Meaning that it’s 5% off the theoretical price - which we can put another way, as the real price has fallen 5%.
Given that the whole idea here was to increase the real price by playing with the nominal one that hasn’t worked out well then, has it?