The Equity Bank share may be headed for a split after a steady rise over recent months that has seen it trade at Sh279 as at yesterday.

The share had hit Sh285 per share before the bank's acquisition of Uganda Microfinance Limited for Sh1.7 billion was announced two weeks ago.

Research notes prepared by leading investment firms have indicated that the prevailing prices are above the reach of ordinary investors and may occasion a share split.

As the name suggests, a split involves dividing the share into smaller units by reducing the nominal value to make them to trade easily. Recent splits at the Nairobi Stock Exchange have involved reducing the shares by a factor of either 5 or 10.

That has resulted in one share yielding multiple pieces, but the accounting value for each of the shares falls by the same factor. Ideally, the market price of the shares should also reduce proportionately, making the shares more affordable to investors.

In effect, the share split leaves the capital base of the company intact but comprising more in the form of shares.

"A split is one thing they should be considering now," said Peterson Mwangi, CEO of Afrika Investment Bank. He attributed the surge in the bank's share to portfolio managers taking positions on behalf of their clients.

Investors also anticipate a strong performance from the bank from the just concluded Safaricom IPO after it lent billions of shillings to investors, earning transaction and interest income from the trades.

Tony Waweru, a senior dealer at Standard Investment Bank, told Business Daily that sellers of the share are not very many, which was the reason the price continues to go up.

"I see a split happening as the price continues to go up," said Mr Waweru.

That position may drastically change in August when the bank's top owners will have the latitude to trade in their shares. Under terms agreed with the Capital Markets Authority when Equity listed on the Nairobi Stock Exchange (NSE) through introduction in 2006, the shareholders were committed not to sell their stake for a period of two years.

One of them, the managing director, James Mwangi, has indicated that he is in the bank for the long-haul and will not dispose of the shares when the lock- in period ends, a position the other directors are believed to hold.

A limited supply of the shares is likely to push prices upwards but even out as sellers exit the counter in a profit-taking phase.

In an April 2008 analysis for investors, Bob Mathews Stockbrokers had put the fair value - the unbiased price of a good, service or asset - of the bank at Sh171 when the share was trading on the NSE at Sh148.

Thus, it was clear that the analysts were saying that the share was undervalued and that it needed to go up.

It seems that even Bob Mathews Stockbrokers had underestimated the share price movements.

Indeed, with such analysis there is a possibility of the Equity Bank share price falling as a result of downward pressure by perceptions that its fair value is lower than the market price.

Among the stocks which have been split in the past include Barclays Bank and East African Cables.

However, a reality check shows that many shares have fallen by a considerable margin since striking a high immediately after the split.

Barclays share was split at one for every five and the share has traded at a high of Sh100 since then but it has in recent months hovered around Sh70 to Sh80.

Immediately East African Cables shares were split, they realised a high of Sh110 but this price has considerably come down to a low of Sh30 and is currently trading at around Sh44.

The trend indicates that a split can sometimes lead to a fall in share price when the initial split is driven by speculation rather than fundamentals.