I first wrote about a company that is now called Xenith Bankshares back on May 11th 2016 before it merged with and into Hampton Bankshares (HMPR).
Post merger holders of HMPR were not affected, the number of shares they owned after the merger were the same as before. Holders of Xenith were given (if memory serves) 4.4 shares for each one share they held of the old XBKS. Post merger the name for the combined company was changed to Xenith Bankshares and it resumed trading under Xenith's ticker symbol XBKS.
Clear as mud?
Back in May the shares were trading around $1.80, and today they're worth $2.50 as of the close on December 7th 2016. That's almost a 40% gain in just over 6 months, so not too shabby. Of course that pales in comparison to many hyped up, speculative companies. But then it also hasn't been the roller coaster ride you often see with those riskier plays..
Not a bad looking chart, covering the period from when I first wrote about it on this blog to the present, but enough patting myself on the back.
Shareholders recently approved a share consolidation which will take effect on Tuesday December 13th with every 10 shares being converted into 1 post consolidation:
There can be different reasons for a company to enact a share consolidation, some good and some bad. Often when its a company listed on a more senior exchange like the NYSE or Nasdaq a reverse split is employed to bring a company's stock back in compliance with the rules of the exchange.
You see it all the time with stocks trading for less than a dollar over a protracted period of time. Exchanges like the Nasdaq have a minimum bid price requirement of $1.00 so a stock trading for less than that will often consolidate to lift their share price. However at $2.50 that obviously isn't the issue for Xenith Bankshares.
Other times a penny stock will do a reverse so that the stock can be uplisted off the OTC markets and onto a more senior exchange like the Nasdaq. A couple of stocks I've written about here have gone that route, SBOT and VUZI specifically with consolidations of 10 and 75 to 1 respectively.
Obviously though neither of those two rationales apply to Xenith. They don't need to maintain compliance and they're not seeking to move off the Over The Counter market. So one might reasonably ask: "Why bother"?
I can think of a few reasons. At $2.50 (or thereabouts) per share XBKS qualifies as a penny stock in many eyes, there are investors who view any stock trading under $5 to be a penny play. With positive earnings of $0.77 for the trailing twelve months according to WSJ.COM and a piddly little PE ratio of just 3.23 as per the same site, it doesn't look like the markets are showing XBKS much love or respect.
With a 1 for 10 consolidation the PPS will be up around $25 per share assuming the PPS maintains its current level. I believe that they will then have the chance to attract more serious investors, those who shy away from stocks they view as Penny Plays.
I can also envision XBKS attracting more institutional interest, although with current institutional ownership at over 56% they're already doing well in that regard. Short interest will not be affected directly, current up to November 15th 2016 the number of shares shorted was 1.94 million, not even 2% of the float. Those shorted shares will also consolidate post consolidation, bringing the number down to about 194,000.
As I've written before on my other posts about Xenith/Hampton I believe the biggest potential catalyst comes with a return to paying dividends. If they can start paying shareholders in regular distributions I can see their PE ratio climbing to something more in line with the standard in the banking sector, somewhere around 20.
One last thing to take into consideration is the fact that this consolidation will result in "odd lot" holdings for any shareholders who own shares in increments of 100. For every 1,000 shares held before the reverse, they will become 100 shares post consolidation. However 100 shares will become 10. This could be important depending on an individual investor's time horizon and level of investment experience in my opinion.
Someone holding 500 shares pre-consolidation will have 50 after the split, and 50 is what is called an "odd lot". If someone goes to sell an odd lot (anything not in 100 share blocks) their order goes to the back of the line so to speak.
Someone holding 500 shares pre-consolidation will have 50 after the split, and 50 is what is called an "odd lot". If someone goes to sell an odd lot (anything not in 100 share blocks) their order goes to the back of the line so to speak.
Its something to consider for those who will end up with shares numbering in the tens instead of hundreds, or thousands.
That's it, I'm a shareholder so view my commentary in that light and verify all the information provided. While I would not willingly post false information I am human and am more than capable of making an error. Comments are always welcome and good luck.
Would you buy more here?
ReplyDeleteFrom a buy/hold perspective I still think XBKS represents good value, with the potential for a large payoff in my opinion if they return to paying dividends.
ReplyDelete