Since the beginning of 2015, the price of Adris’ ordinary share has increased by 21.2%, while the price of Adris’ preferred share increased by 14.4%. In this brief analysis, we looked at the spread difference between these 2 share types.
The only real difference between Adris’ ordinary shares and preferred shares is that the ordinary shares maintain voting rights at the GSM, while preferred shares let go of that right. As such, the difference in the prices of these shares is solely based on the importance for investors of having voting rights at the GSM. Investors with higher amounts of ordinary shares, and thus voting rights, could influence the Company’s direction and policy, especially if a larger number of investors decided to band together and support a certain course.
Since 2007, both the price of Adris’ ordinary and preferred shares changed wildly, as did the spread between them.
Prices of Adris’ ordinary and preferred shares (2007 – 2023 YTD, EUR)
Source: Bloomberg, InterCapital Research
Furthermore, from 2007 to 2023 YTD, the price of Adris’ ordinary shares decreased by almost 36%, while the preferred shares suffered a lesser, but still a noteworthy decrease of 13.4%. However, considering the state of the stock market back then, where prices were inflated to such a high degree that the majority of companies, especially the longer-lasting Croatian blue-chip are still to reach those levels again, the decrease isn’t surprising.
In terms of the spread, the average spread between the ordinary and preferred shares amounted to 17% in the period from 2007 until now, while currently, it stands at app. 15%.
Spread between Adris’ ordinary and preferred shares (2007 – 2023 YTD, %)
Source: Bloomberg, InterCapital Research
If we looked at the largest spread between these 2 share types, we can see that the largest one was seen during the GFC. For example, out of the 5 largest spreads between the stocks, the 1st one was at 68.9%, and it occurred in October 2008. The 2nd and 3rd largest spreads occurred in January 2007, while the remaining 2 occurred in October 2008. On the other hand, the lowest spread recorded since 2007 occurred in June 2014, at 0.60%, followed by 0.61% in July 2009, and 0.82% in December 2009, while the remaining 2 also occurred in April and May 2014, respectively.
Looking at the more recent data, since 2015, the price of Adris’ ordinary shares increased by 21.2%, while the price of Adris’ preferred shares grew by 14.4%. In the same time period, the average spread amounted to 19%. Excluding 2015 itself (due to it being the first year since the official end of the recession), all the maximum spreads were recorded in March 2020, with the largest recorded on 23 March 2020, at 30.1%, followed by 29.5% on 24 March 2020, with the remaining top 5 largest spreads following this trend, and the lowest being 25% on 19 March 2020.
The story with the minimums is a little bit different, with 4 out of 5 lowest spreads recorded in 2022, ranging from 4.96% at the lowest to 5.65% at the highest. The only outlier was the 5th lowest spread, at 5.81% in February 2020.
So having all of this data in mind, we can see some very interesting trends. The largest spreads occur primarily at the beginning of times of great crisis, which in this case would mean the Global Financial Crisis (GFC) in 2008, and the beginning of the COVID-19 pandemic in 2020. On the other hand, the minimums recorded are usually either after the end of the crisis or when the crisis seems to be soon over. For the minimum, this was the case if we spoke in general, but if we looked at recent data only, this would not always prove to be the case. As we have seen, 4 out of 5 lowest spreads in the last 5 years were recorded in 2022, where the situation for the equity markets, in general, was far from ideal.
This can be due to several reasons. First of all, both ordinary and preferred shares have solid liquidity and an active market marker, and as such the spread between their prices can be managed better. This wasn’t always the case, and the improvement in the spread in recent years can most certainly be attributed to this. Furthermore, even economic shocks, which temporarily do increase the spreads, do get better as the situation improves. Also, due to the higher price of ordinary shares, even if both shares decline by the same percentage points, the decline in absolute amounts for the ordinary shares will be larger. Finally, Adris’ preferred shares are part of both the CROBEX and CROBEX10 indices, and any investment into them will also partly be invested into the preferred share, something that isn’t present with the ordinary share.