Ask Colin

Do you adjust your past data file for large placements to fund takeovers etc.?

Do you adjust your past data file for large placements to fund takeovers etc.

There are many views on this. The same problem arises with large dividends eg on bank shares.

The classic view is that we only adjust the past data for bonus, rights, entitlement, splits, consolidations, calls and capital returns.

I treat "special" dividends as capital returns if they are large enough to cause a gap on the chart. Others adjust any dividend that causes a gap on the chart.

I think this is the key. Theoretically a large placement at a discount to market price will require an adjustment, because it is just like a rights issue, only it is not prorata. The calculation is similar, except that the total capitalisation has to be used rather than the ratio of the issue. I personally do not adjust for placements because they were historically limited by law to 10% of capital without shareholder approval. However, the new "jumbo" placement system should cause us to rethink this. The reason that I did not adjust for placements was their small size relative to capitalisation and because the market did not always seem to adjust as it should - unlike rights and bonus issues, where it almost always did.

I think it is up to you. Where I know such an event has taken place, I allow for it in my analysis. I see not reason why you should not adjust for them - especially where a gap appears on the chart and is obviously closed by the adjustment.