By Gustavo Pessoa, professor of economics and finance at Fundação Getulio Vargas (FGV) in Brazil.
The proposed split for Sonatel shares would reduce the size of an investment unit. Its appeal to savers will also depend on the cost of orders and resale conditions. Intermediaries can make this opening truly useful for small budgets.
A single share can commit more savings than a household wishes to expose to a company. In the resolutions project prepared for its assembly on October 8, Sonatel proposed to transform each share into ten, with an expected effective date of October 26. This change in unit calls for a debate on the place of small portfolios in the BRVM.
The mechanism deserves a simple explanation. At unchanged market value, a stake divided into ten shares retains the same total value. The holder owns the same fraction of the company. They have not received any additional benefit or guaranteed return. Prices can then evolve with results, expectations, and transactions.
The interest of the split lies elsewhere: it would allow less money to be committed to a unit and fine-tune a portfolio more precisely. Someone who must choose between buying a whole share and keeping their savings in cash would have an intermediate option. This flexibility matters when a reserve must be kept for household expenses.
However, the access costs must follow. If fixed account or order fees absorb a significant portion of a small investment, the decrease in unit price brings less than it seems to promise. Management and brokerage companies would benefit from showing the actual amount invested after fees, for various order sizes, as well as the cost of resale.
It would also be necessary to avoid confusing visibility with liquidity. More individuals may be interested in Sonatel without finding, at the desired time, a counterpart at the expected price. The ability to resell is as important as the ability to buy. A welcoming market should allow the investor to understand how their order will be executed and what a delay or price difference could cost them.
The evaluation of the operation should therefore focus on the amounts exchanged and the execution conditions. The number of shares traded may mechanically increase after a split, even if the value of transactions does not increase. Comparing the two periods requires correcting this effect. The median size of orders would help to see if transactions actually become accessible to smaller budgets.
Sonatel could accompany this opening with an educational presentation of its earnings per share, recalculated in the new unit. Past profits and historical dividends should remain comparable. A variation related to the number of shares should not be interpreted as a deterioration of results or a promise of distribution. This clarification would particularly benefit those entering the stock market for the first time.
A lower ticket price does not exempt from diversification. A well-known company can take up too much space in a small portfolio, especially when the saver confuses familiarity with low risk. The split would be useful if it facilitates decisions proportionate to each budget. For Sonatel and BRVM intermediaries, success would be measured by savers capable of financing their purchase, understanding their exposure, and reselling without discovering too late the cost of their entry.
Gustavo Pessoa is a professor of economics and finance at FGV in Brazil.
