Carphone valuation queried as shares fall below issue price

SHARES IN Carphone Warehouse sank below their issue price on only their second day of trading yesterday following the company's £1.6bn float last Friday.

SHARES IN Carphone Warehouse sank below their issue price on only their second day of trading yesterday following the company's £1.6bn float last Friday.

The stock closed down 9.5p at 192p compared with the 200p issue price. The fall is bad news for the 10,300 private investors who agreed not to sell any shares for three months to ensure they received their full allocation of £1,000-£50,000 of shares. Volume was heavy yesterday with 37 million shares changing hands. Although that is down substantially from the 142 million shares traded on Friday, it still represents a large portion of the newly quoted company's equity. The shares had opened at 201.5p yesterday and briefly managed a rise to 204.5p. However heavy selling pushed the stock back down. "I haven't seen any buyers at all," one dealer said.

Analysts questioned the share pricing, which one banking source close to the flotation said accorded the company a market capitalisation of around 24 times this year's EBIDTA (earnings before interest, tax, depreciation and amortisation).

While most retailers trade at around 15 times their earnings Carphone has claimed a higher value, closer to that of the telecoms and technology sectors, because of its newly launched internet portal Mviva and virtual network. Ian Daly, an analyst at Charles Stanley, said: "People haven't known how to classify it, whether as a retailer or a mobile telecoms company, and whether by theme rather than by size. Factors like that are going to have a reasonably large impact. The market is probably still trying to find an equilibrium level and there's obviously a lot still to come out."

The shares were priced towards the top end of the proposed range of 170-220p, but while the issue was nearly nine times oversubscribed, there were only 11,500 private investor applications.