The Bannerman Energy Ltd (ASX: BMN) share price will be on watch when it resumes trading tomorrow.
Following the results of a general meeting on 18 July, shareholders and the company's board each agreed to a 10-to-1 reverse stock split.
Whilst this won't have any material impact on shareholder equity, it could have a material impact on the Bannerman share price.
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Bannerman share price 10-to-1 consolidation
The company announced the reverse split – also known as a stock consolidation – on Monday after shareholders voted in 98% majority in favour of the move.
A reverse split is an action taken by executives to effectively merge the number of shares outstanding into a proportionally smaller number.
Contrast this to a conventional stock split, whereby the number of shares outstanding is diluted, but for the same desired outcome.
Further, whereas share buybacks only apply to certain shareholders, reverse splits apply equally to all shareholders.
Also with a reverse split, there's no impact on shareholder equity – they still own the same percentage stake – however, it is likely to increase the share price on market.
Companies do this because they feel the market is under-reflecting the 'true value' of their equity. Hence, the reverse split is done to better reflect perceived intrinsic value.
Bannerman affirmed the same in its language around the move, in its proposal last week.
"Bannerman shareholders are believed to hold a positive view towards reducing the Company's share count," it noted.
The Consolidation is proposed to reduce Bannerman's capital structure (share count) to a level that better reflects the advanced stage of its Etango Uranium Project and potentially makes the Company's shares more attractive to certain investors, including institutional and retail investors in North America.
Filings made to the ASX show that it reduced its share count from 1,487,682,104 before the reverse split, to roughly 148,768,210 shares on issue afterwards. This represents a 90% decrease.
Bannerman also made similar reductions to various stock options and performance rights on issue.
In the last 12 months, the Bannerman share price has held a 38% gain.
