Sterling re-lists At N77 after share reconstruction

Sterling Financial Holdings Plc has re-listed on the Nigerian Exchange at N77 per share after completing a 1-for-10 share reconstruction that cut its outstanding shares by 90 per cent.

The NGX on Wednesday delisted the company’s 68.50 billion existing ordinary shares and simultaneously listed 6.85 billion reconstructed shares.

Trading is expected to resume once the post-reconstruction trading window opens.

The development followed shareholder approval at the company’s Annual General Meeting, a High Court order and the Securities and Exchange Commission’s no-objection, according to a research note by Cowry Asset Management Limited.

Sterling was last traded at N7.70 on September 22 before its shares were suspended for the corporate action.

However, Cowry warned investors against interpreting the new N77 price as a sharp increase in the company’s value.

“The headline jump from N7.70 to N77.00 should not be mistaken for a market re-rating,” the research firm said.

It explained that the 90 per cent reduction in the number of shares offset the tenfold increase in the quoted price, leaving Sterling’s market capitalisation unchanged at about N527.5bn.

“Every shareholder retains exactly the same percentage ownership,” Cowry stated.

Under the reconstruction, every 10 existing shares were consolidated into one share.

Thus, an investor who previously held 100,000 Sterling shares at N7.70 would now hold 10,000 shares at N77, leaving the value of the investment unchanged at N770,000.

Cowry said the exercise changed the denomination of Sterling’s equity value rather than creating additional value for shareholders.

Before the reconstruction, the company had 68.50 billion shares valued at N7.70 each, implying a market capitalisation of N527.5bn.

Following the exercise, 6.85 billion shares at N77 each produce the same market value.

The company’s share capital also fell by 90 per cent, from N34.25bn to N3.43bn.

Cowry cautioned investors against using the new share price to compare Sterling’s historical performance without adjusting the previous share data.

“Investors who compare unadjusted history with post-reconstruction numbers will overstate growth tenfold, so restating the series is the first analytical task,” it said.

The research firm said attention would now shift to how the stock performs when trading resumes.

“N77.00 is a reference point rather than a target, and the stock is free to trade on either side of it once the market opens,” Cowry stated.

It warned that the reduced number of shares available for trading could result in sharp price movements during the early sessions, depending on free float and institutional positioning.

Cowry described the reconstruction as fundamentally neutral, although potentially positive for Sterling’s capital-market profile.

It, however, advised investors to assess the company’s latest financial performance before making investment decisions.

“We recommend that investors avoid reading the N77.00 listing price in isolation, and wait for adequate post-resumption price discovery and the company’s latest financial performance before making aggressive valuation calls,” the firm said.

It added that a stronger investment case would depend on evidence of sustainable earnings growth, attractive returns on equity and competitive valuation against industry peers.