Personal Finance: Why new issues take off
Saturday 16 May 1998
If ever a company was a victim of its own success, Thomson Travel was. More than a million people registered for shares. It was, by all accounts, the most popular share issue since Rail Track.
But wait a second. Just how many share issues have there been since Rail Track? If you exclude the demutualisations, none of any size. And here we have the problem: a dearth of new issues. So, when one comes along with a well-known name, offering obvious attractions such as discounts on holidays, it is hardly surprising if the punters line up in droves.
At present, there is not much sign of more flotation activity. If anything, the trend is the other way. Mergers among motor manufacturers, talk of telecoms giants tying together: there is plenty going on in the world of bids and deals.
And then you have the share buy-backs. With the ending of any ability to reclaim tax on dividends paid on ordinary shares for all investors fairly soon, it was inevitable that the companies would choose this method of rewarding shareholders.
We do not have the range of large, privately owned companies that exists in continental Europe to provide a ready market for flotation. Of course, that may change - at least so far as our neighbours across the English Channel are concerned. A growing appetite for equity issues in Europe could stimulate a rush of flotations. Privatising state-owned industries will start the ball rolling, but it could be that there will be enough of a cultural shift to temp entrepreneurs to float their companies, particularly if valuation levels remain as high as they are.
Over here, the potential for new issues is more limited. Most state enterprises not firmly nailed to the public sector have been sold off, while the demutualisation bandwagon may not have much further to run. Anyway, demutualisations simply convert reserves into shares. Unless new money is raised (which does not seem very likely), shares are not offered to potential new investors to pay good money for.
We do, of course, have the tea company Tetley coming along soon. It is a well-known name, although hardly as sexy as Thomson Travel.Moreover, there will be those who remember that Tetley was itself bought out from Allied Domecq not very long ago at less than half the value likely to be attributed to it on the stock market.
Of course, the success of Thomson Travel could coax other flotations into the market place. Virgin Travel has been widely tipped as one. It would be quite a turnaround for Richard Branson.
His flirtation with the stock market, through his music business, was hardly a happy experience. Still, he has indicated that Virgin Rail, at least, may enter the public domain. Whether it will have quite the appeal of Thomson Travel if, indeed, we are offered shares, only time will tell. But Virgin must now be one of the most powerful brands in the world. Expect a rush to buy.
Brian Tora is chairman of the Greig Middleton investment strategy committee
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