New Issues: Fewer leaps of faith as worm and tide turn

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The Independent Online
The worm has turned. 'There has been a new issue mania,' said one weary institutional investor as the weekend approached. 'And most of them are asking you to make a complete leap of faith.'

Friday saw the start of dealings in two newcomers; both opened at a discount. Beazer Homes, the Hanson offshoot, fell from the opening 165p a share to 155p before recovering to close at 162p, while shares in Maid, a computer database company, closed 8p below the placing price of 110p.

Specific characteristics of the two companies take a share of the blame. Beazer looked reasonably priced, but the offer was only just oversubscribed. Maid had earlier attracted adverse comment about its pricing and aspects of its accounting policies, and had scaled back the issue.

Yet they were not the only sufferers. MDIS, the country's biggest- ever software new issue, drifted 6p down on Thursday and Friday from the opening price of 260p. The public offer of its shares, a 35 per cent clawback from the placing demanded by the Stock Exchange, was modestly undersubscribed.

The public wanted only a meagre 13 per cent of the offer of shares in Capital Shopping Centres, whose broker Robert Fleming criticised the Stock Exchange's insistence that 35 per cent had to be offered to retail investors rather than placed with institutions. The 230p price put the offer at a 13 per cent premium to net asset value.

On the other hand, the pounds 413m House of Fraser offer was easily oversubscribed, and is believed to have had about 100,000 applications from private investors. Results of the float and allocations will be announced today. SG Warburg, the brokers, raised a few hackles by bringing the offer price down from 200p to 180p, but a price that looked outrageously cheap last week looks rather canny this week.

Pricing has again become a fine judgement. Floods of highly priced new issues are a bull market phenomenon; they suffer first when the tide turns. With the FT-SE 100 index off 3 per cent by the end of last week, and some nervous moments before Friday's close, the rookies' droopy start is not surprising.

There are signs that investors are becoming far more selective. Corporate finance departments are getting the message from institutions that some firms should not be coming to market at all, regardless of pricing, because they are not well enough established.

This scepticism particularly affects technology firms. Pharmakopius, the pharmaceuticals consultancy, has postponed its flotation. Kapiti, a software firm that had not yet firmly decided to go ahead, is watching the market closely.

Today sees dealings start in Robert Wiseman Dairies, on a prospective price-earnings ratio of 15 compared with ratios of 10-11 for Unigate and Northern Foods. Wednesday brings Capital Shopping Centres.

On Thursday it is the turn of the London restaurant group Chez Gerard, at 16.3 times 1994 earnings, and two technology stocks. Unipalm, a computer software group, is on a more demanding forward multiple of 123.5. Trafficmaster has made losses before tax in each of the previous three years.

These two really do ask investors for that act of faith though both were easy to place, according to their advisers.

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