Investor glossary

A

Active Fund

An active investment fund is one which aims to outperform the market average by seeking out stocks that will provide higher total returns using research and analysis.

Analyst

A financial or equity analyst is a person who performs financial analysis for external or internal clients as a core part of their job. ‘Sell side’ analysts work for stockbrokers whilst ‘buy side’ analysts work for investment firms. Writing external reports or notes expressing opinions is always a part of a ‘sell side’ analyst’s job as they are trying to generate business for their brokerage but is not necessarily required for ‘buy side’ analysts who are performing an internal role for their fund managers.

Analysts’ forecasts

Sometimes referred to as brokers’ forecasts. These are published estimates of future company performance issued by stockbrokers’ analysts. See also consensus forecasts.

Annual General Meeting (AGM)

The meeting of shareholders held to approve the accounts and to reappoint directors and the auditors. It is held once a year and must be held within 15 months of the previous AGM.

Annual Percentage Rate (APR)

The term APR is the annual rate that is charged for borrowing expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. The APR is a way to compare the costs of a loan, but other factors should be considered including the term of the loan and other charges not covered by the APR.

Annual report and financial statements

The directors' report to shareholders setting out, both in narrative and numerical terms, details of the company's performance during the last year, the state of its finances and assets as at the reporting date, its corporate governance procedures, risks and directors’ remuneration.

Articles of Association

The document which sets out a company’s regulations for its internal management, and will commonly cover such matters as the rights of shareholders, the procedure upon an issue or transfer of shares, the rights attaching to shares, the appointment, removal and powers of the directors, and the conduct of board and general meetings.

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B

Balance sheet

The statement featured in the financial statements that indicates the net book value of the company's assets and liabilities as at the end of the financial period and the ways that these have been financed through external debt, internal profit generation and funds raised from the issue of shares.

Bear

A person who expects prices of shares and/or stock markets to fall. See also bull.

Bear market

A period of falling share prices and a pessimistic outlook on the value of companies due to a number of factors including adverse movements in interest rates, unemployment, UK and global economic conditions. See also bull market.

Bid price

The price for your shares when you sell.

Bond

A certificate of debt issued to raise funds. Bonds typically pay a fixed rate of interest and are repayable at a fixed date.

Bond rating

Gradings by debt rating agencies such as Fitch, Standard & Poor’s or Moody’s to classify the investment-worthiness of a company's debt.

Booking rate

Sometimes referred to as the ‘acceptance rate’, the booking rate is a ratio used in Vanquis Bank to provide an indication of the credit standards being applied by the business. The ratio is calculated as the number of applicants being offered a credit card divided by the total number of applications. A lower booking rate potentially indicates that underwriting standards are more stringent resulting in fewer potential customers being offered credit. Vanquis Bank’s booking rate is typically around 20% although this rate is dependent on the mix of recruitment channel for new customers between direct mail which typically carries a higher acceptance rate than the internet channel.

Bull

A person who expects the price of shares, and/or stock markets, to rise. See also bear.

Bull market

The opposite of a bear market. A period of rising share prices and an optimistic outlook on the valuation of companies. See also bear market.

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C

Capital generated

Capital generated is the level of equity capital generated by the group to pay dividends to the company’s shareholders. It is calculated as cash generated from operating activities, after assuming that 80% of the growth in customer receivables is funded with borrowings less net capital expenditure. This is consistent with the group’s financial model to fund the receivables book through a combination of 20% equity and 80% debt and is consistent with a target gearing ratio of 3.5 times and maintaining an adequate level of regulatory capital.

Cash cover

Cash cover represents the ratio of collections over credit issued and is one of the group’s banking covenants. It demonstrates how the business has collected cash back against the loans it has made in any particular period.

Cash flow statement

The statement in the financial statements that indicates, for the financial period, the sources of all cash, from trading operations, external sources of finance and investment activities, and how this cash has been used for trading, capital preservation and taxation purposes.

CCD

Stands for Consumer Credit Division and comprises the group’s home collected credit businesses in the UK and the Republic of Ireland, Satsuma, the online direct repayment installment loan business based in the UK, and glo, a UK-based online guarantor loan business.

Close period

The period after the end of the company’s financial year or half year but prior to the company’s release of its Preliminary or Interim results, during which directors and certain employees are not permitted to trade in the shares of the company.

Consensus forecasts

An average of the market analysts’ forecasts of a company.

Consensus period

An average of the market analysts’ forecasts of a company.

Contract note

The record the investor receives from their broker giving details of a sale or purchase of shares.

Corporate governance

The term used to describe the policies and procedures which the company's directors employ in their conduct of the company's affairs.

Covenant

A legally binding term of a borrowing agreement between a debt issuer and a borrower in order to protect the interests of both parties. Covenants can be negative (forbidding the borrower from undertaking certain activities) or positive (requiring the borrower to meet specific requirements). The group is required to comply with four banking covenants in respect of gearing, net worth, interest cover and cash cover.

Credit line and credit line increase

A credit line offered by Vanquis Bank is the maximum amount that a customer is permitted to borrow on their credit card at any one point in time without incurring default charges. If a customer displays good payment discipline and their personal finances and circumstances permit they will be granted a credit line increase to allow them to borrow more. Vanquis Bank start customers on a low credit limit (typically £250) and then grant steady increases over time (known as the ‘Low and Grow’ strategy). The maximum credit limit offered by Vanquis Bank is £3,500.

CREST

A settlement system that allows you to hold share certificates in an electronic form.

Crest Transfer Form

A form authorising a broker to transfer shares where the share certificates are not physically held.  See also Stock Transfer Form if you do physically hold your share certificate.

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D

Demerger

A demerger is a form of corporate restructuring in which an entity's businesses are segregated into one or more components. Provident Financial plc demerged the companies comprising its international division on 16 July 2007, forming a separate listed company, International Personal Finance plc which trades under the ticker, IPF.L. Shareholders in Provident Financial plc at that time received a share in both companies.

Dividend cover

Calculated as earnings per share divided by dividends per share. This shows the rate that the company is paying its dividends out of earnings. Companies like PFG that do not absorb a large amount of capital in generating profitable growth can maintain a low dividend cover relative to companies that need to retain a lot of capital in the business to grow profits. PFG has a minimum dividend cover target of 1.25 times.

Dividend discount model

A method of valuing a company used by investors which discounts future projected dividends back to their present value.

Dividend per share (DPS)

This is the annual income a registered shareholder receives on each share invested in a company.

Dividend yield

This is calculated as annual dividend per share divided by the current market price of the share and expressed as a percentage. The dividend yield shows the annual return an investor can make from dividends if they purchased the share at that market price.

DRiP

Stands for Dividend Reinvestment Plan. These schemes are more common in the US but some UK companies operate them as well. As the name suggests, they allow you to automatically reinvest your dividends with low transaction costs.

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E

Earnings

Profit available to ordinary shareholders, after all operating expenses, interest charges, taxes and preference dividends have been deducted.

Earnings per share (EPS)

The profit after tax of the company divided by the weighted average number of shares in issue during the year. Adjusted earnings per share represents earnings per share after excluding exceptional or one-off items.

Effective tax rate

The effective tax rate is the ratio of the tax charge to profit before tax. The effective rate can differ to the statutory corporation tax rate for a number of reasons including items of income or expenditure disallowable for tax purposes or due to the impact of prior year items.

EGM

Extraordinary General Meeting. A meeting of shareholders which may be called to approve special events such as a take-over, or major acquisition.

EPIC

Stands for Exchange Price Information Code. Also referred to as a ‘symbol’ or ‘ticker’. This is a three or four letter code, unique to each company. Provident Financial’s EPIC is PFG.

Equity

That value of the company's attributable to shareholders.

Ex-dividend

If you buy a share that is ex-dividend then you are not entitled to the last dividend it declared. There is normally a gap of a few weeks or even months between the time a company declares and pays its dividends. The cut-off date as to who gets the dividend (the “record date”), should the share change hands, is known as the ex-dividend date. A company’s share price normally falls by the amount of the dividend on the record date as this is the value that will be extracted from the company (normally in the form of cash) and given to a shareholder.

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F

Financial analysis

An assessment of the viability, stability and profitability of a business.

Financial Ombudsman Service (FOS)

The FOS was established in 2001 as a result of the Financial Services and Markets Act 2000 to help settle disputes between consumers and UK-based businesses providing financial services, such as banks, building societies, insurance companies, investment firms, financial advisers and finance companies.

Financial Services Compensation Scheme (FSCS)

The FSCS is the UK's compensation fund of last resort for customers of authorised financial services firms. The FSCS may pay compensation to a depositor if a financial services firm is unable, or likely to be unable, to pay claims against it, up to a maximum of £85,000. This is usually because it has stopped trading or has been declared in default. All authorised firms, including Vanquis Bank, are required to pay an annual levy to the FSCS.

FTSE

Financial Times Stock Exchange, the joint operation for the compilation and maintenance of the indices used as the key performance benchmarks based on share prices.

FTSE indices

For UK companies, the key indices are the FTSE 100 and the FTSE Mid 250. Provident Financial is a constituent of the FTSE 100 Index.

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G

Gearing

A financial ratio that compares some form of owner's equity (or capital) to borrowed funds. Gearing is a measure of financial leverage, demonstrating the degree to which a firm's activities are funded by owner's funds versus creditor's funds. A highly geared company is one that carries a lot of debt. Gearing is one of the group’s banking covenants and the group must maintain a gearing ratio of less than 5.0 times (i.e. debt can be no more than 5 times the value of equity). However, the group’s internal target is to maintain a gearing ratio of no more than 3.5 times to ensure alignment with the minimum divided cover target of 1.25 times and the group’s growth plans. The group calculates gearing as borrowings (based on contractual rates of exchange and excluding deferred arrangement fees) divided by adjusted equity. Adjusted equity is stated after deducting the group’s pension asset/liability and the fair value of derivative financial instruments, both net of deferred tax, in line with the group’s banking covenants.

Going concern

A business that is a going concern is one that is perceived to be able to function without the threat of liquidation for the foreseeable future, usually regarded as at least within 12 months from the date that the presumption is made. In terms of statutory accounts, the going concern presumption is assumed to be the date of signing the accounts not the accounting reference date.

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H

Headroom on committed facilities

Represents the difference between the total amount of committed contractual debt facilities provided by banks, bond holders and other lenders and the amount of funds drawn on those facilities. The group aims to maintain headroom on committed facilities which, together with the retail deposits programme, meets any contractual debt maturities and funds the group’s growth over at least the next 12 months.

Hedge fund

A private investment fund that may invest in a diverse range of assets and may employ a variety of investment strategies such as leveraged, long, short and derivative positions to maintain a hedged portfolio intended to protect the fund's investors from downturns in the market while maximising returns on market upswings. Hedge funds typically target generating absolute returns unlike, for example, mutual funds that aim to outperform a pre-agreed benchmark. Hedge funds often require a large initial minimum investment and are open-ended meaning that investors can only invest and withdraw their money at regular, specified intervals.

Hedge funds are most often set up as private investment partnerships that are open to a limited number of investors, typically institutions, such as pension funds, university endowments and foundations or high net worth individuals. Because hedge funds are not sold to the public or to retail investors, they are not regulated in the same way as, for example, mutual funds. This gives far wider freedom to use different investment strategies, such as leveraged, long, short and derivative positions, compared to a conventional, long-only equity fund.

Holding company

A company whose main assets are shareholdings (usually controlling) in other companies. Provident Financial plc is the holding company of the statutory entities forming the Consumer Credit Division, Vanquis Bank and Moneybarn.

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I

Individual Capital Guidance (ICG)

The ICG is the level of regulatory capital that the PRA requires a regulated firm to hold. The ICG is often expressed as a percentage of the assets held by a regulated firm (‘risk weighted assets’) together with specific fixed monetary capital requirements for other risks (often called ‘capital add-ons’). The ICG is specific to an individual regulated firm and remains private between the PRA and that firm. The PRA requires both the group as a whole and Vanquis Bank individually to operate to specific ICGs.

Individual Liquidity Adequacy Assessment (ILAA)

See liquid assets buffer.

Individual Liquidity Guidance (ILG)

See liquid assets buffer.

Institutional investor

Large financial institutions such as pension funds, unit or investment trusts and insurance companies.

Interest cover

Interest cover is one of the group’s banking covenants. It represents the ratio of the group’s earnings prior to interest and tax over the interest paid by the group and demonstrates the ability of the group to service its debt from its earnings. The group is required to maintain an interest cover ratio of greater than two at all times.

Interim announcement

A company’s announcement of its half-year results made to the Stock Exchange each year. PFG’s interim announcement of its results for the half-year ending 30 June is normally made in late July each year.

Interim Management Statement (IMS)

An IMS is an announcement updating the market on a company’s performance at the end of the first and third quarters of each financial year. PFG issues its first quarter IMS in early May each year in conjunction with the AGM and issues its third quarter IMS in late October.

International Financial Reporting Standards (IFRS)

Internationally-adopted accounting standards. 

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L

Limit price

When you ask a broker to buy or sell shares you can set a limit price. This will represent a maximum price you want to pay, if you are buying, or the minimum you would like to receive, if you are selling. It's best to check with your broker how they handle limit prices. For example, some will cancel your trade after a certain time if they can't match your limit price.

Liquid assets buffer

A liquid assets buffer is a holding of high quality unencumbered assets (e.g. government gilts) being held to ensure that a firm has sufficient liquid resources available to fulfil operational plans and meet financial obligations as they fall due. The amount required to be held is determined by the PRA and is called the ILG following completion of an ILAA.

Liquidity

The proportion of cash or cash equivalents in a company's assets. Sometimes used as a measure of the near term financial health of a company. Also a measure of the volume of shares being traded, which may affect the ability of buyers or sellers to build/unwind large holdings without a substantial impact on the price.

Long-only

Describes investors who only acquire shares to make future returns through dividends and share price appreciation and do not undertake short-selling activities. See also short–seller.

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M

Market capitalisation

Describes investors who only acquire shares to make future returns through dividends and share price appreciation and do not undertake short-selling activities. See also short–seller.

Market makers

These are the people who ensure that there is a market in a particular share. They are the people who set the bid and offer prices.

Market price

The price at which a share can currently be traded in the market.

Mid price

The mid price is the price you see quoted in the financial pages and in your portfolio. It is the halfway point between the bid and offer prices. See also bid price and offer price.

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N

Net worth

A calculation of owner's equity (or capital). Net worth is one of the group’s banking covenants and the group must maintain a net worth of at least £200m. The group calculates net worth as shareholders’ equity stated after deducting the group’s pension asset/liability and the fair value of derivative financial instruments, both net of deferred tax, in line with the group’s banking covenants.

Nominee

The most common type of account for holding shares, especially with online brokerages. Essentially the broker will hold everyone's shares rather than issuing certificates for each individual holding.

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O

Offer price

The price at which a market maker will sell shares in a particular company.

Option

The right (but not the obligation) to buy or sell securities (normally shares) at a given price before a given date (expiry date).

Ordinary share

The most common class of share representing the owner’s interest in a company.

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P

Par value

The face, or nominal value, attributed to each of a company's shares. For PFG this is fixed at 20 811 pence per share. The par value has no relationship to the market value of the company or to the quoted market price of a share.

Preference shares

Preference shares are similar to ordinary shares but with a fixed dividend rather than a variable dividend. The holders of preference shares are entitled to their dividend before ordinary shareholders and rank above ordinary shareholders should a company be wound up.

Preliminary announcement

The company’s announcement of its full year results made to the Stock Exchange each year, prior to the publication of its Annual Report & Financial Statements. PFG’s preliminary announcement of its full year results for the year ended 31 December is typically made in late February each year.

Pre-tax profit

Also known as profit before tax. This figure is reported by the group or company in its income statement and reflects the results of all business activities for the financial period before taxation. Pre-tax profit is often stated prior to exceptional items.

Price to book

A method used by analysts and investors to value a company. This is calculated by dividing the market value of a company by its net assets. The market value (also known as the market capitalisation) is calculated as the share price multiplied by the number of shares in issue. Companies that trade on a high price to book generally represent high return on equity businesses that do not absorb a lot of capital.

Price/earnings (P/E) ratio

The P/E ratio is a ratio calculating how many years it will take to recover the investment in a share based on current earnings and is a common method of valuing companies. Calculated as a company's ordinary share price divided by its earnings per share. Companies with good growth prospects generally have a higher P/E ratio.

Private placement

A direct sale of securities (normally debt) to a single or small number of investors.

Prudential Regulation Authority (PRA)

The PRA is responsible for promoting the stable and prudent operation of the financial system through regulation of all deposit-taking institutions, insurers and investment banks.

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R

Regulatory capital

The group is the subject of consolidated supervision by the PRA. See also Prudential Regulation Authority (PRA). As part of this supervision, the group is required to maintain a certain level of regulatory capital (Individual Capital Guidance (ICG) see also ICG) in order to mitigate against unexpected losses. Regulatory capital differs from the group’s shareholders’ equity base included in the balance sheet as it excludes intangible assets, the group’s pension asset/liability and the fair value of derivatives, but includes the group’s subordinated loan notes.

Remuneration

The total amount paid to an employee. Remuneration is often used mostly when describing the package paid to a director. Remuneration principally includes salary and fees, bonuses, benefits in kind, company pension contributions and share-based incentive schemes.

Return on assets (ROA)

ROA is a ratio which measures the return a company generates from its assets. At PFG, this is calculated as profit before interest after tax (prior to the impact of exceptional costs) for a period divided by average receivables during that period.

Return on equity (ROE)

ROE shows the return being generated from the shareholders’ equity retained in the business and represents profit after tax (prior to the impact of exceptional costs) for a period divided by average equity for that period. At PFG, average equity is stated after deducting the group’s pension asset, the fair value of derivative financial instruments, and the proposed final dividend. Typically, businesses with high ROEs do not need to retain a large amount of equity in the business in order to fund their own growth.

Revenue yield

Revenue yield is a key performance indicator within the group, particularly CCD, and shows the rate of income generated from amounts lent to customers. The ratio is calculated as revenue for a 12 month period divided by average receivables through that period. The group quotes the ratio on a 12 month rolling basis to avoid the impact of any seasonal fluctuations in revenue and receivables.

Rights Issue

A method by which a company raises cash for an acquisition or expansion. If you already hold shares in a company you will be entitled to buy more at a set price, on a pro rata basis.

Risk-adjusted margin

The risk-adjusted margin is a key performance indicator within the group, particularly Vanquis Bank, and shows the net income generated from amounts lent to customers, adjusted for those amounts not expected to be repaid. The ratio is calculated as revenue less impairment for a 12-month period divided by average receivables for that period. The group quotes the ratio, in respect of Vanquis Bank, on a 12-month rolling basis to avoid the impact of any seasonal fluctuations in revenue, impairment and receivables. Vanquis Bank target an annualised risk-adjusted margin of 30.0%.

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S

SETS

The Stock Exchange’s automated electronic system for trading securities.

Share capital – Issued share capital

The number of shares that are currently in issue.

Share-based payments

Share-based payments are share awards made or options given to senior employees as part of their remuneration package. The group operates two share award schemes: the Long Term Incentives Scheme (LTIS) and the Performance Share Plan (PSP) and one share option scheme: the employees savings-related share option scheme (typically referred to as the Save As You Earn scheme (SAYE)). Awards under the LTIS and PSP are granted at zero cost to an employee and will vest to that employee after a specified period if certain performance conditions are met, such as specified growths in earnings per share or total shareholder return. Share options under the SAYE are granted to all employees with 6 months’ service whereby an employee may purchase shares at a discount provided they remain in employment with the company for 3, 5 or 7 years.

Short-seller

An institution that has borrowed shares from another institution and then sold them to another party on the assumption that the value will fall and the shares will be repurchased at a later date at the lower price thereby generating a profit. The short-seller will pay a fee to the lending institution for borrowing the stock and will have to return the shares to that institution at a point in time.

Stock on loan

Stock on loan is the proportion of a company’s shares that are currently being lent by one institution to another, principally due to short-selling (see also short-seller). Institutions lending shares to a short-seller charge interest which generates further income from the share in addition to the dividend income and capital growth.

Stock transfer form

A form authorising a transfer of shares where the share certificate is produced.  See also Crest Transfer Form if you do not physically hold your share certificate. 

Stockbroker

A person who carries out stock market transactions as the agent of a client.

Sum of the parts

A method of estimating the value of a group by valuing each of the individual parts separately and adding the individual values together before adjusting for any synergies which may be generated from combining the divisions.

Syndicated facility

The group’s single largest borrowing facility is provided by a syndicate of banks provided through an agent, who is typically one of the syndicate banks.

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T

Tier I/Tier II capital

Tier 1 capital is core capital held under the PRA’s guidance in the BIPRU handbook including shareholders’ capital and specific reserves. For Provident Financial plc, tier 1 capital consists of retained earnings and other reserves, adjusted to exclude investment in own shares, intangible assets, the group’s pension asset, net of deferred tax, and fair value movements in respect of derivative financial instruments, net of deferred tax.

Tier II capital is secondary bank capital that includes items such as undisclosed reserves, general loss reserves and subordinated term debt. For Provident Financial plc, tier 2 capital represents subordinated loan notes which are repayable in June 2015. The subordinated loan notes are hybrid instruments which have attributes of both debt and equity which, subject to certain criteria, allow the loan notes to qualify as eligible tier 2 capital.

Tracker funds

Often referred to as passive funds, these are professional investment funds that seek to emulate the investment performance of a specific share index by investing in the companies that make up the index in the same proportion that each company comprises of the index. The managers of these funds have lower expenses and the charges to investors are lower than active funds. See also active funds.

TSR (Total Shareholder Return)

The increase in the value of a company’s shares, together with any dividend payments made to shareholders over a specified period, typically expressed as a percentage of the opening share price.

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U

Under-employment

Part-time and temporary workers who wish to work in a full-time, permanent job but are currently unable to find such employment. This is calculated monthly by the Office for National Statistics (ONS) (Reference YCCF and YCCX on the Labour Market Statistics dataset released monthly by the ONS).

Unit trust

A unit trust (often called a mutual fund in the US) is a collective fund that allows private investors to pool their money in a single fund, thereby spreading their risk across a range of investments, getting the benefit of professional fund management, and redeeming their dealing costs. A unit trust is open ended which means that fund managers can issue new units and cancel old ones in accordance with the supply and demand of investors. Many unit trust managers have converted to open-ended investment companies (OEICs). OEICs normally have a single price for purchase and sale whereas unit trusts typically have two prices: one for selling and one for buying with the difference known as the ‘spread’.

Utilisation

The amount outstanding on a credit card shown as a percentage of the credit limit. Utilisation in Vanquis Bank is high at around 75% – which is significantly higher than for most prime credit card issuers – due to the ‘Low and Grow’ strategy whereby customers are initially granted a low credit limit which will then be increased steadily over time to a maximum of £3,500, provided the customer demonstrates good payment discipline and wishes to have their credit line increased. See also credit line and credit line increase.

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V

Volume

The number of shares traded in a day. This averages approximately 275,000 for PFG.

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#

52-week high

The highest closing share price over the past year.

52-week low

The lowest closing share price over the past year.

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