Stock Split

How a split works in the Nordic countries

The legal form varies by country, but the result for the shareholder is the same:

• In Finland, a split is usually carried out as a share issue without payment: shareholders receive new shares in proportion to their holdings. The general meeting decides on it, or the board under an authorisation from the meeting.
• In Sweden and Norway, a split is usually done by dividing the shares’ quota or nominal value, decided by the general meeting.

The new shares are booked to shareholders’ book-entry accounts automatically. Trading on the post-split basis starts on a date announced in advance; from that day the share price, and orders placed before the split, are adjusted by the exchange.

The table below lists the splits in the companies we track. Their per-share figures on Finpendium are restated to the latest basis, in the same way the companies restate them in their own reports.

Why old per-share figures change after a split

After a split, every share represents a smaller piece of the company, so figures published before the split must be divided by the ratio to be comparable:

• Earnings per share for earlier years is divided by the ratio. Under IAS 33, the company restates EPS for all periods presented as if the split had always been in place.
• Dividends per share paid before the split are divided by the ratio. A dividend history that is not restated shows a fake drop in the year of the split.
• Share prices in charts and databases are adjusted backwards. An unadjusted chart shows a crash on the split date that never happened to shareholders.

The total amounts do not change. The dividend a shareholder received before the split is the same in euros or kronor; it is only spread over more shares in the restated figures. The worked example above shows this with one company’s dividend.

Does a split matter to investors?

In theory, no: cutting a cake into more pieces does not make more cake. A split does not change the company’s value, its cash flows or its market capitalisation, and valuation multiples such as the P/E ratio stay the same because both price and earnings per share are divided by the same number.

In practice, splits have small effects. A lower share price makes it easier for small investors to buy round lots and for employees to receive shares, and it can increase trading volume. Studies of US markets have found that shares sometimes rise around split announcements, but the usual explanation is that boards split when they are confident about the future, not that the split itself creates value.

A split is also different from a stock dividend and a bonus issue, although the mechanics can look alike. When reading a company’s share history, check the exact terms in its release.

What to check after a split

• Your data source. Make sure the price history, EPS and dividends you look at are split-adjusted. Mixing adjusted and unadjusted figures is the most common error after a split.
• Valuation multiples. P/E and dividend yield do not change because of the split itself. If they appear to have changed, one of the inputs is on the old basis.
• Options and share plans. The terms of employee share plans, options and convertible bonds are adjusted by the same ratio, so that their holders are neither better nor worse off.
• Targets in the company’s communication. Per-share targets, such as a dividend policy stated in euros per share, are restated to the new basis in the company’s releases.