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Active Energy Shares – When A 3,000% Price Rise Is Really A 16% Price Fall

Tim Worstall
Tim Worstall trader
Updated 5 Jul 2022

Trade Active Energy Shares Your Capital Is At Risk

Key points:

  • Active Energy Group is seemingly up 3,000% this morning
  • In reality it's down about 16%
  • The secret is the difference between nominal and real prices

Active Energy Group (LON: AEG) shares are recorded this morning as being 3,050% (yes, three thousand percent and change) up by the usual tickers and measurements. This is also, in reality, something more like a 16 to 20% share price fall – there are different ways of calculating it. Which does lead to a certain wonder if both can be true at the same time – which they are, they're both true.

The secret is that the 3,000% and change price rise is a change in the nominal price, the 16% fall is in the real price. Underlying that is that there's been a consolidation (reverse share split to Americans) and the introduction of the new stock to the London market. It's also possible to say, on this evidence, that the consolidation hasn't really worked, for the aim of such actions is to increase the overall market capitalisation of the company, not reduce it.

The underlying investment point here is that folk, us investors, just have an idea in mind of what a share price “should be”. We tend to think, in London, that prices in the £1 to £10 range indicate a solid and mature company. Also, that share price in the pennies indicate a speculative – risky possibly, highly profitable possibly – company. Share prices in the fractions of a penny either confuse or put people off. So, if the share price is in the fractions of a penny then consolidate them, merge them, so that the share price rises into the desired range.

Active Energy share price
Active Energy share price from IG

Also Read: Higher Energy Prices Change Everything – These Sectors Look The Most Likely To Be Affected

As we can see from that chart of the AEG share price it's only the new stock that is being quoted. This is the new stock just entering the stock exchange lists this morning:

AEG listing
AEG listing from stock exchange

The change in the share price is largely just a nominal change. The explanation is here from the recent announcement: “The Company is proposing to consolidate every 35 existing ordinary shares of £0.0001 each (“Existing Ordinary Shares”) into one new ordinary share of £0.0035 each (“New Ordinary Share”).” This change took effect this morning. It might spark more interest in the stock in London, it might not. What it does do though is keep the OTCQB listing over in the US.

The aim of this change in the nominal price is of course to increase the real price. If the shares are more attractive by changing the number in issue and the logical price range then we would expect to see the share rise by more than the consolidation. So, in a 35 for one exchange we should see a 3,500% price rise and then some. The and then some being the value that has been added by the consolidation.

We've actually seen a 3,057% (at pixel time) share price rise which is less than the predicted 3,500% one. So, there's actually been a fall in the real price of AEG here – by about 16% or so (20% by another calculation method).

This is not, to be fair, what management were hoping for.

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.
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