Guardian Holdings Limited, which recently cross-listed on the Jamaica Stock Exchange (JSE), could execute a stock split sometime in the future.

Speaking on Taking Stock with Kalilah Reynolds, CEO of Guardian Holdings, Ravi Tewari said a stock split was discussed prior to relisting. He added that it remains on the cards.  

CEO of Guardian Holdings, Ravi Tewari

“Business is quite fluid so we will make the appropriate decision at the appropriate time. What we do can change from time to time [but] with some of the changes to the rules in terms of the number of shares that can be owned and traded we don’t see it [the stock split] as a particular issue at the moment,” said Tewari.

“It is always something on the table,” he added, when pressed. 

A stock split increases the number of shares in a company without changing the company’s overall value. Shareholders can be offered 2, 3, 4 or any number of shares for each of their existing shares, but the overall value of their shareholding remains the same. 

For example, if a person owns 100 shares in a company at $50 each, the total value of all their shares is $5000. If the company does a 5 for 1 stock split, that person will then have 500 shares worth $10 each, which still equates to $5000. Companies often do this to encourage more trading in their stock, especially when it is perceived as too expensive. 

GHL is the second-most expensive stock on the JSE, behind Palace Amusement. It started trading on the JSE on May 5 at over J$500 a share, close to its trading price on the Trinidad and Tobago Stock Exchange (TTSE) the day before cross-listing. It then rose to over J$900 in just a few days, and is now down to about J$760. NCB Global Holdings, which is the majority shareholder in GHL, has listed two million of its shares for sale on the open market at J$795. That offer opens Monday, May 31.

In a poll conducted by Kalilah Reynolds Media on YouTube, 61% of respondents said the company should consider a stock split to make the price more affordable. 

Tewari said the company decided to relist on the JSE because they believe the market’s dynamism will benefit the value of the company’s share price over time. He said it was also important for the Caribbean’s largest insurance company to be listed in all the major markets.

At the same time, industry experts have said a stock split will not have much of an impact on GHL shareholder wealth as the metrics, including dividend payments and the price relative to earnings (P/E), would remain the same. 

“It becomes a bit more affordable from an absolute price perspective for investors so it would be more people being able to buy then at its lower dollar amount,” explained Financial Coach, Founder and CEO of Profit Jumpstarter, Keisha Bailey. 

CEO of NCB Capital Markets, Steven Gooden

CEO of NCB Capital Markets, Steven Gooden agreed that only a “subtle difference” would come from a stock split. However, he believes the company’s performance will lead to more investors accepting the stock at its high price. He added that GHL’s listing will help the Jamaican market to have a better appreciation for high valued stocks.

“There are stocks overseas [such as] Amazon that’s trading over US$3,200 thereabout, that’s a little bit over J$500,000 and Tesla that’s trading at the equivalent of around J$90,000, and these stocks are tracked by Jamaican investors so we just need to move from a mindset where a stock is cheap because of the nominal value. At  the end of day it boils down to valuation,” reasoned Gooden.

Wealth Advisor at Ideal Portfolio Services, Dwayne Taylor, said while the GHL stock price looks intimidating, the stock is a good buy and represents an introduction to value investing rather than trading for just short term gains.

Meanwhile, Gooden said investors should be more focused on GHL’s P/E (price to earnings) ratio as that shows the company being one of the cheapest stocks on the JSE currently.

According to Gooden, the average financial sector stock in Jamaica trades in the high teens relative to their earnings. However, based on the prospectus for the invitation to purchase 2 million GHL shares from NCB Global Holdings, GHL shares are being offered at 8.4 x earnings.  

“So although Guardian shares are being offered at $795, if you compare Guardian’s stock price to its peers, they are one of the cheapest if not the cheapest stock at the exchange currently based on P/E,” he said.

NCB Capital Markets is acting as lead arranger for the invitation. The NCB Financial Group owns about 62% of GHL which means the offer will free up less than 1% of their controlling stake in the company.

Gooden said the offer is phase two of GHL’s relisting process, with the aim being to put shares in the hands of as many Jamaican investors as possible to stimulate trade. Jamaican investors have been having a hard time getting their hands on the shares since the relisting three weeks ago.

NCB stands to raise $1.6 billion if the offer is fully subscribed. Gooden is projecting it will be oversubscribed due to early participation and interest in the offer, which opens on May 31.

“If we were doing a fund raising exercise it would have been a much larger figure…. The primary objective of this is to create a market in GHL shares; it makes no sense to cross-list and there’s no supply on the market for trading,” he said.

Gooden said a higher level of trading activity is expected in GHL shares after the offer. He added that it should also influence trading activity on the TTSE. According to Gooden, the JSE has been five times more active than the TTSE over the past two years.

Of the 2 million shares going on offer, 400,000 shares are reserved for staff of NCB Financial Group or Guardian Group. 1,000,000 Shares are reserved for clients of NCB Financial Group and Guardian Group in Jamaica. The remaining 600,000 shares are available to the public.

New episodes of Taking Stock with Kalilah Reynolds premiere Tuesdays at 7pm on YouTube and kalilahreynolds.com 

Watch here: https://youtu.be/kyCagU4bNho

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