The Investment Column: A leap of faith is needed before buying Orange
Depending who you talked to, the paper value of the company on flotation came out anywhere between pounds 1.5bn and pounds 3.2bn. In the end, the sale price was pounds 2.45bn and the shares shot to a 19.5 per cent premium, valuing the whole of Orange at pounds 2.9bn.
If this had been a sale of the whole company, the owners would of course have been kicking themselves at giving away so much. They could in fact have floated at a higher price, but decided against raising the ceiling of the indicative pricing range of 175p to 205p - published in the prospectus - despite early evidence that the offer would be heavily oversubscribed.
It is obvious why they were so generous: three-quarters of Orange stays with British Aerospace and Hutchison, and a healthy premium at the start is good investor relations for the long term. The marginal underpricing should be more than made up by the increase in the paper value of the rest of the stock.
The problem with valuing a stock like this is that investment appraisal is only the beginning. Orange is a latecomer to a relatively new market and it happens to have had an extremely successful year, wrongfooting Vodafone, Cellnet and Mercury One-2-One on both pricing strategy and marketing.
But with such a short track record, projections of future growth, market share, margins and customer useage are about as reliable as economists' forecasts of gross domestic product: useful as a working assumption for a Budget or a spreadsheet, but anybody who believes them needs his or her head examined.
To buy Orange requires a leap of faith as well as number-crunching. There is evidence all around that mobile telephony will have an all pervading influence on people's lives in the next century. The choice of Orange rather than Vodafone is dictated by the fact that over the next two years the company has a useful advantage: the fact that - unlike both Vodafone and Cellnet - it sells only digital phones.
Orange shares nevertheless look expensive on paper when compared with Vodafone. They will stay that way just as long as the company outperforms its bigger rivals in growth of market share.
- 1 Venezuela Expo Tattoo 2015: Extreme body art from 'Vampire Woman' to 109mm earlobes
- 3 Ball pool for adults opens in London
- 4 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
- 5 Canadian woman suing police who locked her in van with sex offender who then raped her
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
Putin opponent reveals Russian President's daughter's secret identity
Ball pool for adults opens in London
Gay couple buy JebBushForPresident.com web domain, and refuse to sell
Canadian woman suing police who locked her in van with sex offender who then raped her
9 reasons Greece's experiment with the radical left is doomed to failure
Have we reached 'peak food'? Shortages loom as global production rates slow
Greece elections: Syriza and EU on collision course after election win for left-wing party
Stephen Fry explains what he would say if he was 'confronted by God'
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...