Just a quick post for those of you considering applying
for shares in the Medibank Private IPO.
The float price looks reasonable, but the Government
certainly isn’t giving it away, especially considering the backdrop of an anaemic
equity market in Australia. And no, it won’t be anything like the gold mine
that was the Commonwealth Bank, CSL, or the first tranche of Telstra, those
days are well and truly gone.
Medibank is a very solid business that is growing, it
currently has no debt, good returns on equity, requires limited capital
investment and has healthy cash flows. It does have low profit margins and this
is something that can potentially be improved as a publically listed company.
The announced price range for the float is $1.55 to
$2.00 per share and you will have to pay the funds across prior to knowing what
the final price will be (i.e. you will have to apply for a certain dollar
amount of shares, not knowing how many shares those dollars will ultimately represent).
This is certainly a negative aspect of this float. There is a fairly
significant difference between paying $1.55 or $2.00. This situation could have
(and should have) been avoided by holding the institutional book build prior to
the opening of the retail offer, but of course, that would have been in the
interests of the retail applicants not the vendor.
Hopefully any potential scale backs won’t be too severe
(with 2.7 billion shares on offer, there should be enough to go around, but you
never know). Anyone who remembers the privatisation of the then NSW TAB (around
1998) will recall the fiasco of that offer, where retail applicants were scaled
back to absolutely trivial numbers of shares. That company performed ok, but
was not worthy of the level of over-subscription that it experienced on
floating. Medibank is also unlikely to be worthy of heavy over-subscriptions
and this will be especially so if the price is closer to $2 than $1.55.
I believe that anybody who thinks they will be able to
make a quick profit shortly after the float will be disappointed. However, if
you are looking for a longer term investment with a bit of capital growth and a
reasonably attractive dividend yield, I think you will probably achieve your
objective.
Personally, I will probably apply for shares. I don’t
expect spectacular things from Medibank, just a return that should comfortably
beat the fixed interest rates I currently earn from cash holdings.
As always, the above does not constitute investment
advice.