If you have read the disclosure from MRC which will change its PAR value from 0.1 to 0.5 (source) may be quite a jargon for some new traders or investors.
To make it simple when ever you will encounter such term in the stock market it will only refer to stock splits.
As I read from other trader explanation stock splits can be categorized into two:
➤regular stock split (par value down)
➤reverse stock split (par value up)
Above sample change in par value of 0.1 to 0.5 simply falls under the second category of stock split which is "par value up" (reverse stock split) as price increased while shares decreased.
Before we go further let us just illustrate how this will work. Let's say we purchased 50,000 shares at 0.25 =₱12,500 capital.
With simple math we just need to get the quotient of the change of par value.
Simply divide 0.5 with 0.1=5
Divide your total number of shares with this value.
Number of shares 50,000/5=10,000 will be your current shares.
Now divide ₱12,500 with 10,000 shares=₱1.25 per share
shortcut method:
multiply 5 value to buy price and divide to number of shares
₱0.25 x 5=₱1.25
50,000 / 5=10,000 shares
other method:
Divide 0.1 with 0.5=0.20 and divide this to your buying price and multiply to your number of shares.
₱0.25/0.2=₱1.25
50,000 x 0.20=10,000 shares
So actually there is no effect on the value from the original purchase of 50,000 shares you own at 0.25/share.
It may decrease your shares as you may see, but will still be the same value as before the only difference is the face value is now turned to ₱1.25/share vs the old ₱0.25/share (penny stock).
The main reason why companies make such moves to make it more attractive to institutions and big players to jump in who are not into penny stocks.
If buyers come into play then more demand means price tend to increase.
While for the first category "par value down" is made simply to make it affordable to bring more investors as well.
Again there will also be no effect to the original value of shares you have as applied to "par value up", the main effect will be the contrary as your number of shares will increase but the face value will be lowered down than your original purchase.
Take note that companies who aims to have change of par into penny stocks will be more attractive to retailers and also increase its liquidity in the market.
Change of par done by other companies is in preparation for some backdoor listing instead of undergoing IPO.
So basically stock splits done by companies only aim to attract more investors either to make it look affordable or beyond ₱1.00 so as not to be categorized as penny stocks.
Other stock I remember who undergone stock split includes FNI which is under reverse stock split.
Just a Summary
➤regular stock split (par value down)=increase in number of shares, face value is lowered
➤reverse stock split (par value up)=decrease in number of shares, face value is raised
-no change in your current value when these occurs, still the same when you first purchased your shares, just imagine you have a ₱100 bill and exchange it in to two pieces of ₱50, the worth of your money did not change-
Just to give a comparison sample for the regular stock split (par value down) that recently happened with TBGI from ₱1 to ₱0.10 (shares increased while price decreased)
If you purchased 1,000 shares at ₱3.20 the reflected on your port when it take effect is simply you get 10 times the number of your shares and divide the buy price with 10.
How did we arrived at 10 simply divide 1 with 0.10 =10 (which is the reverse from sample above of reverse stock split)
This time use this value to divide from your buy price and multiply to your number of shares.
₱3.20/10=₱0.320
1,000 x 10=10,000 shares
other method: you multiply current price with new par which is 0.10 and divide shares with 0.10 (which is a result from dividing 0.1 with 1=0.10)
₱3.20 x 0.1=₱0.320
1,000/0.1 =10,000 shares
An upcoming change of par value is also being eyed for IDC from 0.50 to 0.05 (par value down) so simply divide 0.50 with 0.05=10
say you bought 1,000 shares at ₱7.90
₱7.90/10=₱0.790
1,000 x 10=10,000 shares
other method:
or divide 0.05 with 0.5=0.1 and multiply with price and divide with number of shares
₱7.90 x 0.1=₱0.790
1,000/0.1 =10,000 shares
A good reading is well explained here as my source of reference.
Again at the end of the day the market will still decide no matter how the company tries to make its price attractive to the public.
Happy trading!
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