Latecoere (EPA: LAT) shares will rise 1,000% at the open today. LAT shares are not going to rise 10x because they’ve suddenly worked out how to make the business wildly profitable. Rather, this is a technical change. So we have here a change in the nominal price but not one in the real price that is. This is therefore not something to base an investment or trading decision upon - but it is something to be aware of.
As to what’s done at Latecoere: “Presently, Groupe Latécoère operates as a major supplier of aerostructures, producing sections of fuselage and doors, having become the second-largest European supplier of onboard electrical wire harnesses and avionics bays through its Latelec subsidiary company. It is currently a member of the CAC Small and participates in all segments of aeronautics: commercial airliners with Airbus and Boeing, regional aircraft with Embraer and Bombardier, business aircraft with Dassault Aviation, as well as military aircraft with Dassault and Airbus.” Subcontracting to those big groups can be a problem - they’re the only possible buyers so a supplier often enough has to take the price that’s offered - having no pricing power yourself is not a great way to earn wide margins.
This is what then leads to the LAT share price performance, down 74% over the past 12 months.
Latecoere share price from Google Finance
The problem here is that we humans aren’t wholly rational about numbers and prices. We regard something as “cheap”, some as “expensive” and not in a wholly correct manner. This is why prices are set at 99 cents, $39.99 and so on.
Now, what is regarded as “cheap”, in the sense of too cheap to bother with, in a tock price depends upon the specific stock market. Each has their own culture. A penny stock on the NYSE must - must - sort itself out. In London no one worries. Here on hte European exchange clearly someone is worrying.
So, something must be done about the 11 cents LAT stock price. That something is simply to declare that 10 old shares are now one new one - a one for 10 reverse stock split, or consolidation: “... the reverse stock-split will result in the exchange of ten (10) existing ordinary shares with a par value of twenty-five euro cents (€0.25) each (the "Old Shares") for one (1) new ordinary share with a par value of two euros and fifty cents (€2.50) (a "New Share")”
As this doesn’t change the market capitalisation of the company, just the number of shares that make it up, this means the share price reacts mechanically - up 1,000%, or 10x. It’s a purely nominal price move that is, not a real one at all.
