COMMENT
Only a fool would get in the way of a thundering herd, and with demand for Medibank Private running well ahead of supply, it is inevitable its shares will top the price the shares were sold to professional investors when trading commences at midday Tuesday.
But that doesn't mean wading in once trading begins is an easy way to make money.
Private investors paid $2 for Medibank Private and institutional investors $2.15 a share. And by making sure professional investor demand was not sated, this has ensured quick profits from the outset for those lucky enough to have got theif foot on an allocation.
And with the prospect that the shares will be included in key sharemarket indices, professional investors will need to wade in and boost their holdings, which will push the shares higher and help to absorb the anticipated 'stag' selling as those lucky enough to get shares in the float sell out.
And there has been no shortage of private client brokers who are telling clients to "sell", arguing Medibank at $2, or higher, was priced more like a well-oiled healthcare stock such as CSL or Ramsey, rather than a heavyweight health insurer with a bloated cost base and .
A paucity of quality stocks coupled with the easy gains from some earlier government privatisations such as CSL and Commonwealth Bank has prompted a surge of investor funds bidding for Medibank shares.
"It's a fairly safe bet to say that the opening price for this stock will be comfortably north of [the IPO price] and we think that will provide an opportunity to bag some profit," Greg Fraser of Kimber Capital told clients Tuesday.
"At $2.15 per share, MPL is priced on about 23 times FY15e earnings which puts it in the reasonably expensive box to begin with. Any price higher than that could be described as inflamed and in need of excision, requiring a 'stock-ectomy'.
"A few weeks ago we said it was worth backing the truck up to get stock in this float, but if the combination of over-subscription and over-promotion leads to an over-inflated price, investors should sensibly take some money off the table."
It is all reminiscent of the float a year ago of the Royal Mail which was sold by the UK government. Investors piled in, paying well over the odds for shares in a utility which have gone backwards since its float.
That reversal was underscored last week when it disclosed a steep 21 per cent slide in profit, which triggered heavy selling. Unsprisingly, like Australia Post, the shift of mail to the internet is eating its business.
And, like Australia Post, the Royal Mail, too, is positioning itself to profit from the surge in internet shopping by delivering the growing mountain of parcels to the home, although private outfits are stealing its share of the growing market.
Medibank Private has some way to go to justify the high multiple investors are paying for the shares, and for many investors, there may be better investment options elsewhere.
