Ann: Consolidation/Split - OSL, page-15

Unfortunately AI puts some merit to your claim, but I think the underlying problem is not the split or the raises, it is simply they have not delivered on their promises

Below is a general overview of the claims made in the post, along with some context and considerations about share consolidations (often called “reverse splits”). This is not financial advice—just a perspective on the typical effects and outcomes that can occur.

1 Claim in the Post
The post claims that every stock consolidation leads to an immediate share price drop. It uses examples like WSI, ZLD, MOM, MDC, NUH, Ci1, etc., along with a reference to Paladin Energy (PDN) as a larger-cap example. The author insists there is not a single instance where a consolidation doesn’t result in a dip.

2 General Facts About Consolidations

• Mechanics: A consolidation (or reverse split) reduces the number of shares on issue and proportionally increases the share price to keep market capitalisation roughly the same—at least on paper, from day one.

• Market Reaction: A consolidation, in itself, doesn’t increase or decrease the company’s fundamental value. It’s a cosmetic change in the share structure. However, sentiment can play a big role; many retail investors view a consolidation negatively, often because it’s associated with companies in trouble or trying to maintain exchange listing requirements. This negative sentiment can lead to immediate selling pressure.

• Historical Data: While it’s common to see post-consolidation dips (due to that negative sentiment, or to management raising capital again afterwards), it isn’t a universal guarantee. Some companies do maintain or even gain ground if the consolidation is paired with genuinely positive developments—such as improved finances, a strong pipeline, or if the company’s new price bracket helps it meet a minimum share price requirement for certain funds or indexes.

3 Assessing the ‘Always Worse for Shareholders’ Statement

• Frequent, But Not Absolute: It’s true that many consolidations, particularly among small or distressed companies, are followed by the share price drifting lower. Investors often interpret the move as a sign of potential ongoing capital raises or a management tactic to keep the company “alive” rather than thriving. However, “always” is an overstatement.

• Market Cap vs Price: If the market is already anticipating future dilutions or a weak outlook, the post-consolidation “drop” might just reflect that existing pessimism. You’ll often see more shares issued at a discount, adding downward pressure on the price.

4 Real-World Context

• Oncosil (OSL): The post specifically mentions a 400-for-1 consolidation for OSL, implying the price will shift from around 0.4 cents to around $1.60. If investors believe further capital-raising is imminent, or if the company’s fundamentals don’t convince the market, then yes, the share price might fall below $1.60 post-consolidation. This is common if nothing else changes for the better.

• Capital Raises: One real negative for shareholders can be future dilutions at lower (post-consolidation) prices. If a consolidation is simply the prelude to repeated capital raisings, shareholders could end up losing out. But that’s more about the company’s need for funds or inability to generate revenue—not a magical effect of consolidations themselves.

5 Key Takeaways

• Sentiment-Driven Risk: Consolidations can serve as a red flag for some investors, especially in smaller caps or if management has a history of repeated dilutions.

• Not a Guarantee: While it’s undeniably common to see post-consolidation price drops, it’s not an automatic rule. Some well-managed companies consolidate, then follow up with operational success, improved investor confidence, or a more stable shareholder base.

• Context Matters: Looking at each company’s reason for consolidating, cash position, management’s track record, and the broader market conditions is crucial before assuming it will automatically plummet.

6 Verdict on the Post

• Mostly Valid Caution: The post’s cautionary tone is common among experienced small-cap traders who have repeatedly seen reverse splits followed by lower share prices. It’s a fair warning that often (perhaps “usually”) a share price will dip following consolidation, especially if the company’s core issues remain unaddressed.

• Sweeping Generalisation: Claiming it happens “every single time” is overstated. There certainly have been instances—albeit not as frequent—where companies consolidate and the price holds or eventually climbs. But many do fail to maintain their new higher price if nothing else improves.

Ultimately, whether Oncosil’s proposed consolidation will lead to a drop depends on the company’s fundamentals, capital-raising track record, and market sentiment. A consolidation alone does not destroy value; however, if management’s next steps involve repeated dilutions and if investors are sceptical about future growth, the share price can—and often does—fall below the post-consolidation mark.