In July 2017 Bank of Ireland have received approval to to complete a 1:30 reverse stock split.

What does this mean for the shareholder?

Every 30 shares that an investor owns will be replaced by just 1 share.

Does that mean that I have lost money?

In short, No. The Bank of Ireland share price will go up by the equivalent amount. For example, let’s say that you own 30 shares at €0.20 for a total value of €6. This will simply be replaced by 1 share and the share price will jump to €6. This will still leave you with a value of €6.

The overall value of the company will not change either.

Does this mean Bank of Ireland is a ‘buy’?

No. It should have no impact on your decision to buy the stock. The overall market value of the bank will not change and it doesn’t make any impact on the underlying fundamentals of the company. You should learn how to value stocks before investing in the company.

Our view 

The main money maker for any bank is lending and Bank of Ireland is no different. Whilst lending activity has picked up in Ireland, it is still recovering from a very low base.. Lower interest rates aren’t helping the share price either. Banks perform better in higher interest rate environments.

Therefore, we would expect the Bank of Ireland share price to trend sideways for the foreseeable future. Based on pre-reverse split share price and current fundamentals, we expect Bank of Ireland to trade somewhere between €0.25 and €0.40.

We see better opportunities elsewhere and would prefer to invest in the likes of a Goldman Sachs under $220 – higher interest rates, deregulation and tax cuts offer better opportunities there.

In summary, stock splits will not affect the value of your investment in Bank of Ireland.

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