The distribution of shares, usually free of charge, to business executives is experiencing a great boom, as a reward for the work they have done in previous years.
As a move, it is considered positive, both by investors and analysts, as long as not only executives are rewarded, but also shareholders. This is because it is right for management to be linked to shares and for some executives to benefit from the results of their work, but unfortunately there are also excesses.
- There are cases where the main shareholder increases his percentage of participation in the company, because he receives the largest part of the shares given as a reward.
- Some have previously taken care to sell shares through placement.
- There are also cases where shareholders did not receive anything (e.g. dividends), nor was there any significant project, but the main shareholder received a large “reward” bonus, and Trust Economics has analyzed such cases in the past.
However, it seems that even smaller companies are adopting share distribution programs, which, however, due to the depiction in accounting standards, affect the published profitability of the companies and do not correctly reflect the valuation ratios.
In other words, a company would appear significantly cheaper on the Stock Exchange board if the reward program did not exist.
Two examples from the IT sector are typical, which, due to growth and prospects, attracts investment attention.
First case Example
In the financial statement, the group’s after-tax profits in fiscal year 2024 amounted to 15.047 million euros compared to 14.702 million euros in the previous fiscal year, showing an increase of 7% despite the impact of stock award programs of 1.014 million euros. Thus, the P/E appears to be 15.6 times instead of 12.9 times.
Second case Example
According to the company, the group’s EBITDA in 2024, after the application of the accounting recognition based on the market price method of the Free Share Program, amounted to profits of 15.597 million euros from 15.032 million euros in 2023.
The estimate of the impact of accounting recognition based on the market price method of the Free Share Program amounts to 1.709 million euros and for 2025 it will be 872 thousand euros.
The published net profits due to the effect were 2.67 million euros instead of over 4 million euros.
Thus, the P/E of the share is shown at 35 times instead of approximately 22.5 times.
Other listed companies, e.g. banks and other companies, also have a stock option charge. Obviously, not all cases are the same.
For example, a company has a huge improvement in its results and on the dashboard it has been reflected in a large rally in the stock.
