Outlook: Clueless search for Freeserve value

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The Independent Online
WHEN ASKED a few months back what he thought Freeserve was worth, John Clare, chief executive of Dixons, said he hadn't got a clue. That hasn't stopped the stock market pricing a value of some pounds 1.3bn to pounds 2bn into the Dixons' share price for this fledgling Internet service provider. City sponsors of Freeserve's forthcoming IPO are confident they can make these values stick, and privately they talk of pounds 1.5bn and upwards.

Only 18.25 per cent of the share capital is being floated initially, so stock scarcity alone should keep the shares pricey. Dixons also seems to have signed up virtually every big securities house in town in an effort to make the issue go with a zing - the syndicate is no less than nine firms strong for Europe and six for the US, which seems a little over the top for an IPO which is unlikely to raise more than pounds 300m.

However, the reason soon becomes plain. Surprise, surprise not one of them has pencilled in a value of less than pounds 1.3bn while one of them goes as high as pounds 2.5bn. If there's an independent broker left, Sir Stanley Kalms, chairman of Dixons, would like to hear from you, so that you too can be signed up to the cause. Since even the chief executive doesn't know what Freeserve is worth, it's reasonable to assume nobody else does either. Those that do subscribe must therefore be prepared to enter into the spirit of Internet investment - this is not for widows and orphans but for those that don't mind losing the odd bob or two, it may be an interesting gamble on the long term future.

Freeserve is less than a year old, it loses money and its first year revenues are unlikely to amount to much more than pounds 3m. Moreover, the parallel with mobile phone and cable companies, which were floated on similarly fanciful valuations which to varying degrees are all beginning to be justified, is a false one. Mobile phone and cable companies operate under Government licence and therefore enjoy partial monopoly. By contrast Freeserve operates in a highly competitive market place already saturated by a plethora of copycat "free" service providers.

All the same, the Freeserve flotation should not yet be written off as a fraud, as it already has in some quarters. The company's link with Dixons, still Britain's biggest retailer of PCs, should provide a useful prop to its present market leading position, since every PC that Dixons sells is a potential new Freeserve subscriber.

Freeserve is therefore well placed to benefit from the expected explosive growth in e-commerce. If it is to build on its position in cyberspace, Freeserve also needs highly valued paper as a currency to make acquisitions. At this stage, most Internet stocks are still largely funny money. But one day an awful lot of real money will be made out of the net, and for those with pounds 250 (the minimum retail investment) they can afford to lose, Freeserve may be as good an outside bet as any.

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