Unilever Consumer Care's announcement of 60 per cent stock dividend sent its stock flying on the Dhaka Stock Exchange on Sunday to the utter surprise of the company.
The board of directors on Saturday made the disclosure, with an aim to dilute the stock so the market price came down. Instead, the stock jumped up to 26 per cent, or Tk 751, to Tk 3,600.
"The company's share is trading at a very high price and the objective of issuing stock dividends is to facilitate a correction," said Masud Khan, chairman of Unilever Consumer Care.
The company's share trading began on Sunday at an adjusted opening price of Tk 2,849. It peaked at Tk 3,600 on the DSE during the day's session before closing at Tk 3,423.70. There was no price movement restriction on the stock trading for the day following the corporate declaration.
The more-than-20-per-cent stock price rise of Unilever Consumer Care resulted in the broad index's appreciation by 28 points.
DSEX, broad index of the Dhaka Stock Exchange (DSE), on Sunday declined 25.18 points to close at 6234.98 points. The index could see further corrections without the contribution of Unilever Consumer Care.
Alongside stock dividend, shareholders will also receive 240 per cent cash dividend for the year ended in December 2022.
Md. Moniruzzaman, managing director of IDLC Investments, said some other multinational companies had also seen an unusual rally in the market after declaring stock dividends.
"The price hike happens because investors think they will receive new shares for free. Later on, they realize the mistake," he added.
Why profit was up by 38pc
Meanwhile, the company reported 38.44 per cent profit growth for 2022 though its revenue declined marginally, compared to the previous year.
The company's earnings per share (EPS) stood at Tk 60.64 for 2022, up from Tk 43.80 for the previous year.
"EPS shows an improvement mainly due to one-off benefit (from reassessment of past liabilities and obligations in light of the current business challenges," reads the disclosure.
The company's chairman said the impact of inflation on public life had squeezed the revenue.
"Our products are good for health but are not essential. People are under the pressure of the additional expenses of living, education, and healthcare," Mr Khan said.
The main product of Unilever Consumer Care is Horlicks. It also markets Boost, Maltova, and GlucoMax.
The stock dividend recommended by the company will boost its paid-up capital. Now, its paid-up capital is Tk 120.46 million, and there is a regulatory instruction to expand paid-up capital of small companies to Tk 300 million.
Mr Khan, however, said the declared amount of stock dividends would not meet the criterion set.
What other financial indicators indicate
In the disclosure, the company said stock dividend was meant to ensure utilisation of the retained amount as capital for future BMRE (Balancing, Modernization, Rehabilitation and Expansion).
The bonus shares will be given out of the accumulated profit or retained earnings in line with the regulatory requirement.
Unilever Consumer Care saw a significant increase in costs of raw and packaging materials impacting its business performance.
Its operating cash flow declined in 2022 compared to the previous year, mainly for the price hike of the raw and packaging materials. The rise in foreign exchange rate was partly offset by efficiency in spending related to trading and overhead expenses.
The net operating cash flow per share was Tk. 30.11 for 2022, down from Tk 51.65 for the same period of the previous year.
The net asset value per share went higher due to higher profitability.
The NAV per share was Tk 139.60 for 2022, increased from Tk 122.88 a year ago.