At the close of trading yesterday, the share price of VFD Group Plc closed at N40.60, an 80% decline from the previous trading session’s price of N202.90.
From an observatory standpoint, this decline contravenes existing NGX trading guidelines, which stipulate that stocks cannot experience more than a 10% price change in a single day.
However, in VFD’s case, there is a plausible explanation for this deviation.
On June 19, as the stock’s share price plummeted by 80%, the outstanding shares surged by 400%, rising from 253,369,820 to 1,266,849,100.
This increase occurred as the group created and issued four additional shares for each share owned by its shareholders.
Essentially, the 4-for-1 bonus share issuance carried out by VFD resulted in a multiplication of the group’s issued shares, thus resulting in a share repricing.
VFD Group’s bonus share issuance
As part of the resolutions of the group’s board meeting on May 30, 2024, a scrip (bonus) issuance of four new shares for every one share held was approved, based on the 2023 Audited Financial Statements.
This bonus share issuance was carried out on June 19, 2024, with the register of shareholders closed from June 17 to 21, 2024.
Commenting on the bonus share issuance, Chidinma Chukwueke-Okolo, Head of Investor Relations at VFD Group Plc noted,
“Based on the resolutions of the board of directors last month, we carried out a scrip issuance yesterday, June 19, and this necessitated a price restructuring.”
Different from a stock split
While a stock split and a bonus share issuance are very similar, there’s a slight difference. In a stock split, the company’s shares are split in a manner that has no substantive effect on the balance sheet of the company.
Chukwueke-Okolo also highlighted this, she noted, “While the bonus issuance was similar to a stock split, it is quite different. For the bonus share issuance, we have to redraw our shareholders’ fund to reflect the increase in the paid-up share capital.”
As of Q1 2024, VFD’s retained earnings were about N12.89 billion, as it posted a profit of N2.6 billion during the quarter. The group also posted reserves of N7.34 billion at the end of Q1 2024.
A significant part of the recapitalization effect of the bonus issuance will be the increase in the share capital, from N126.685 million to N633.425 million. This increase in share capital can be financed by either drawing from the share premium or the retained earnings.
In a stock split, the nominal value of a share is split. For example, a stock split of 2-for-1 will cause an ordinary share of 50 kobo each to become two shares of 25 kobo each, leaving the share capital unchanged.
VFD’s financials
In the first quarter of 2024, VFD recorded an over 1000% year-on-year profit growth, as it recorded a net profit of N2.62 billion, up from N220.3 million posted in Q1 2023.
This is as the group’s gross earnings during the quarter hit N15.35 billion, which was 132% higher than the N6.6 billion gross earnings posted in Q1 2022.
During the quarter, the group’s assets grew by 19.4% to N262 billion, from N219 billion as of FYE 2023.
A noticeable part of the asset growth was the 180% growth in cash, as the group’s cash balance hit N23.4 during the quarter, from N8.4 billion at the start of the year.
