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 Humans of New York image of crying gay teen receives best response from Ellen DeGeneres
- 2 What supermodels really think about posing in the nude
- 3 People all over the world are getting semicolon tattoos to draw attention to mental health
- 4 Black teen in critical condition after store employee 'shoots him for stealing 79-cent pack of cookies'
- 5 Chris Moyles reportedly set to make radio comeback with new breakfast show on XFM
Humans of New York image of crying gay teen receives best response from Ellen DeGeneres
Swedish minister gives strongest case yet on why EU should stop turning away asylum seekers
North Korean defector flees to Finland 'with evidence of chemical testing on humans'
Isis schoolgirl Amira Abase who fled London to join terrorists in Syria mocks victims of Tunisia massacre
Father faces deportation to Thailand after 27 years in Britain for two 'stupid crimes'
More Britons believe that multiculturalism makes the country worse - not better, says poll
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
Osborne to cap family benefits at £23,000 – announced ahead of his post-election Budget
Forget little green men – aliens will look like humans, says Cambridge University evolution expert
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
iJobs Money & Business
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...
£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...
£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...