Deltic Energy (LON: DELT) share should rise in value by some 2,000%, or twenty times, at the open this morning in London. This might excite some who get their stock market news from certain sites as they'll be showing this. This will also excite those who go direct to the exchange rather less, as that's already built into the reporting there. For this is a purely nominal price change. It doesn't affect the value of any particular shareholding, doesn't change the market valuation of the company.
Well, even that's not wholly and exactly right. Why would people does through something that has an expense attached to it if there were no price change resulting? What we mean is that the 20 x price change itself is not a real value change, it's a purely nominal one. The effect, as at Deltic, can be a real price change but it'll be hugely smaller.
For what is happening is a share consolidation ( a reverse stock split to Americans). The reason for doing this is purely cultural - we might call it a fashion. But doing this according to fashion can indeed change real prices - try being a company doing something unfashionable and see where that gets your share price.
Deltic Energy share price from London Stock Exchange Deltic Energy has simply declared that what used to be 20 shares will now be, from the start of this trading session, one share. Nominal capital value moves from 0.5 pence to 10 pence. The other way of putting this is that the same market capitalisation is now represented by 1/20th of the number of shares - so each share is worth 20 times more.
The reason to do this, in London, well, it is just fashion. In New York you can lose the listing for having a share price below the $1 minimum bid price. That doesn't happen in London. It's just that the market as a whole thinks that, well, companies with share prices around 1 pence (and it's entirely possible to trade in fractions of a penny, 0.8 pence and so on) just aren't being serious in some unidentifiable manner. That is, the feeling is that people accord a lower real value to things which have a very low nominal value. Given the human propensity to be fooled by the money illusion they're probably right too.
As we can see from that Deltic share price chart, the exchange has already altered the historic data to reflect this share consolidation. The 30 pence odd price in the chart is the post-consolidation value. But that last open/close price of 1.50 p is the pre-consolidation one. The real price change will be the amount by which the Deltic share price varies from 30 pence this morning.
For the economic nerds this is also an opportunity to study the effects of that money illusion. How much the price varies from 30 in the first couple of hours of trading will be a good guide to how much humans do get fooled by it.
