That Was The Week That Was - w/e 27-Sep-2019

Just giving this a bit of a "bump" - As I started writing the draft on Sunday afternoon, Stocko has treated it as published then (rather than this morning). Hence it is already half way down the "recents" list and stands to be overlooked. (I often don't look down that far if there are no new replies).

Hi Gromley,

Just flagging this as a potential issue, not criticism.

Aptitude Software (LON:APTD) is shown as a loss of 10% which I don't believe to be the case. That implies that the price should have got to around 540p which I don't think it did.

Because it was a c share issue and consolidation this may have confused the issue a bit but I can't find any intraday prices to confirm my suspicions.

Hi Doug,

I am glad you brought this  one up re Aptitude Software (LON:APTD) . I double checked and actually I think my figures are right, but it is worth of explanation.

Stocko does indeed show that the share-price closed on the 23rd at  586.29 , so a 10% reduction does look like it implies a share-price of 526 (which didn't happen).

BUT , the was an 8 for 7 share consolidation that effectively occurred at 6pm on the 23rd, so that every 8 shares you held at 4:30pm were converted to only 7 "new" shares.

So this implicitly means that each your 7 "new" shares at 6pm were worth 8/7 * 586.29 = roughly 670p. The share price of these 'new' shares closed on the 24th at 600p - hence the 10% "loss" I report. (My data source does this automatically for me by restating the historic prices so they are measuring the equivalent value of the new shares).

As you say though, there was also an issue of 'B' shares at the same time - 1 B share for each 'old' ordinary share. Investec, on behalf of the company, then offered to buy back these unlisted 'B' shares for 73p each.

So to all intents and purposes (except taxation) this was a 'dividend' event.

So the 'new' share price fell by 70p , but at the same time you received 73 * 8/7p per new share = 83p.

So actually shareholders made a small gain on the day including the 'dividend' but I am only really tracking the share-price movement, so by the same token I will also so the share price falling in the event of a substantial special dividend.

Share consolidations and split can be a royal pain, but I'm pleased to see that my tools do actually seem to have handled this 'correctly'.

The main purpose of 'B' share issues like this I think are :

(1) The distribution becomes a capital event subject to CGT rather than a dividend event subject to income tax.

(2) I am not sure if it applies in this case, but in other cases the shareholder has the option to decide when to sell the 'B' shares and therefore to recognise the (potentially taxable) gain, whereas a dividend is recognised when it happens.

There is mention of a 'B' share dividend (presumably of 73p) that will be "payable to Investec" - I am slightly puzzled as to how this works if a shareholder chooses not to sell to Investec, surely then the dividend should go to the shareholder and Investec's offer to buy will lapse and the 'B' share will be worthless. (Meaning effectively that the shareholder has chosen to take this as a dividend event rather than a capital event.)

The idea of the share consolidation was to have the effect that the ongoing share-price of the "old" shares should be roughly the same as the "new" share. So arguably the presentation on the Stocko graphs of the share price on the 23rd @586p and closing UP at 600p on the 24th is 'correct'. But I find that misleading because it makes it look like you have received a 73p dividend and not suffered a fall in the capital value of your holding - which is not actually the case.

I suppose an alternative way of looking at this is that they have effectively done a compulsory buyback of 1/8th of the shares in issue. That's a theoretical construct, so it probably does not matter, but I cannot quite work out what that theoretical buyback price was - I think it was 667p (per 'new' share) = 73 * 8 * 8/7 but I am tying myself up in logical knots trying to justify that calculation.

Having gone through that mental process, I have to say I lied in my initial sentence - I am not at all 'glad' that you brought it up!!

I am off to lay down in a darkened room ;-)

That's a comprehensive reply!

Shareholders had no choice this time in the choice of new shares, or the treatment of them. All C shares were bought by Investec, approved on holder's behalfs by a director of Aptitude Software (LON:APTD). The only input holders had was approving the scheme in the first place.

It's splitting hairs, and probably irrelevant but since shares went from 1 share being worth approx 600p to 7/8th of a share at 600p (525p) + 73p I don't view it as much of a capital movement, although I see others might.

Thanks Doug.

but since shares went from 1 share being worth approx 600p to 7/8th of a share at 600p (525p) + 73p I don't view it as much of a capital movement

Dividends effectively force you to realise some of the value of your shareholding as income.

In this case you have been forced to realise some of the value of shareholding as a capital gain.

If a company realises it cannot (rationally) make use of excess cash, then there it is not in shareholders interests that they hold on to it; but the idea that companies are generous in "giving" it to shareholders always causes me to raise my eyebrows.