Serinus, SENX, Shares Drop 20% On 800% Price Rise – How Does This Work?

Serinus Energy (LON: SENX) owns and operates oil and gas projects in Tunisia and Romania. There’s been no grand find of new resources, no takeover bid, nothing that would usually indicate an 800% rise in the Serinus share price. There’s also been no grand disaster nor corporate announcement that would indicate a 20% fall either. However, it is still true that we’ve had both of them – and 800% rise and a 20% fall in the Serinus price at the same time.

The trick is the share consolidation – or as the Americans put it, a reverse share split.

The Serinus business itself seems to be pottering along well enough. It’s small, revenues around the $13 million a quarter mark at current prices, a mixture of oil and gas being produced. Margins on that – good gas prices currently – giving a gross profit of around $3 million, net profit of $1 million. That is all dependent upon the current price structure though, for the year before, at market prices then, there was a $1 million loss.

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So, small oil and gas producer. Nothing much has happened to the operating business that we couldn’t gather from observation of market prices. We’d not expect grand price movements off the back of that.

There has been one little hiccup, their MOMAD was Arden Partners, who have just lost their ability to be a NOMAD (as a result of being taken over). So, Serinus has appointed Shore Capital with all the usual caveats about having to conduct die diligence etc. Again, nothing there to indicate large price movements, not unless Shore doesn’t like the results of the due diligence that is and there’s no indication of that.

So, why that significant price move? The share consolidation approved at the AGM. This was a 10 for one, it came into effect this morning and that’s how we can have both an 800% rise and a 20% loss.

There’s no real reason other than fashion for this but the London market has long run on the basis that the “right” share price is in the £1 to £10 range. That’s for the big companies. Under £1 we’re talking penny stocks and under 10 pence and toward 1p just isn’t a good look. That this is just fashion is shown by the way that the equivalent price range in New York is $10 to $100 – that’s why ADRs of London listed stocks are usually 10 shares to one ADR. It is just fashion, custom.

The Serinus share price was bubbling around the 1 and a bit pence level, replace each 10 shares with one new one and the price should rise 1,000%. Other than being in a different part of the fashion spectrum with respect to price nothing has changed. But as we can see, the price has in fact only risen by 800% – so, that’s a 20% fall from where it should be.
The thing is, the usual reason for either a share split or a consolidation is to move to that more fashionable part of the spectrum for the share price. The calculation being that this will – by being in accordance with fashion and custom – add enterprise value. So, if a consolidation should, mathematically, add 1,000% then we’d really hope to see a 1,100% or more price – the added value from the consolidation. Here we see a less than 1,000% rise, the consolidation has lost enterprise value. So, umm, that didn’t work then, did it?