Up 'n' atom at the last sale

Steve Lodge answers the essential questions for those making a last-minute bid for a piece of British Energy
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The Independent Online
You have no time to waste if you want to buy shares in the flotation of nuclear power generator British Energy, the last privatisation this side of the general election.

The Government has set a deadline of noon Wednesday for applying for discounted shares, and an absolute deadline of 5pm Friday for those prepared to pay full price - basically a route for those wanting to get larger numbers of shares. But investors may need to move faster - share shops may have earlier deadlines.

British Energy's sell-off may seem controversial, even for those who are normally supporters of privatisation. Inevitably there will be worries about safety standards being sacrificed to satisfy profit-hungry investors. Nuclear power is not an ethical investment, says Greenpeace, describing the nuclear industry as a "terrible pollutant and terribly dangerous".

Even stockbrokers are not as wholehearted as they have been about many previous privatisations. The City's more mundane concerns include the price at which British Energy will be able sell its electricity, and regulatory worries under a Labour government.

But the company is being sold cheaply - for less than the cost of building Sizewell B, its most modern power station - and is offering bumper first- year dividends, which many brokers say make it an attractive investment - at least for the short term.

Justin Urquhart Stewart, a director of Barclays Stockbrokers, says: "It is priced to go with an excellent dividend yield." He recommends buying and then reviewing the investment after 12 months, before the second instalment is due but after the general election.

The first-year dividends are worth a hulking 17 per cent of the 100p price investors pay for discounted shares - more than pounds 51 gross on the minimum investment of pounds 300 shares. This compares very well with the interest on offer from building society accounts as well as with dividends on other shares. Private investors are also being offered a 5p discount on shares they buy through what is called the public offer - 100p instead of 105p - which will help cushion them against any share price falls and give them a head start on making profits. Here are answers to the basic questions:

q How do I buy?

Buying through what is called "the public offer" via a share shop is the cheapest way of getting shares. As well as getting the 5p discount on all public offer applications, share shop registrants get a choice of further sweeteners: a 10p discount on the second instalment price or one free share for each 15 held until 31 July, 1999.

Share shops will also give you priority in share allocations if the public offer is oversubscribed.

Those who missed the share shop registration deadline can still buy shares at a 5p discount through the public offer via Royal Bank of Scotland. Its branches have application forms, but these must be posted to arrive by noon this Wednesday.

Individuals can only apply once in the public offer, and applications may be scaled back. Investors looking for a bigger slug of shares can apply through what is called "the retail tender". But there are no special discounts or incentives in the tender.

q How much will I have to pay for the shares?

The minimum investment in the public offer is pounds 300 - for 300 shares - and pounds 3,000 in the retail tender, which would give you just short of 3,000 shares.

If you hold the shares until the second instalment is payable - in September, 1997 - you will have to stump up another 65p to 175p a share. The actual figure will depend on prices bid by big investors as well as whether you qualify for the second-instalment discount.

q How many shares should I apply for?

Depends on what you plan to do with them and your own resources. If you apply for a lot of shares you could be allocated all of them. Equally, where applications have been scaled back in the past, "silly" applications have got nothing. If you are looking to build up a portfolio you should be conservative about the proportion of your savings you put into any one share and bear in mind that there will be a second instalment to pay.

If you are looking to "stag" the issue - to sell at a premium shortly after dealings start on 15 July - then to make a reasonable profit after selling costs you may well want more shares. Applying through the tender is worth considering for stags, possibly even making an application via a PEP. But if the shares do not rise in price, the more shares you buy, the greater your losses.

q Should I PEP the shares?

Worth considering for higher-rate taxpayers. The more shares you have the more worthwhile PEP-ing them will be - there are PEP costs that will eat into the benefits, in particular of getting the dividends tax-free. You have 42 days from the start of dealings to transfer shares commission- free into a PEP. Applying via a PEP through the retail tender is also a way of getting preference in the tender.

q How do I sell the shares?

Through your share shop, or through any other stockbroker. You will need to get hold of a share certificate if you want to sell outside of your share shop.

Many share shops have promoted themselves around their cheap dealing costs. Even so, the costs of selling just a few shares may cut deeply into profits. Some share shops will allow families to bunch together holdings at no extra cost. An alternative is to swap your shares for holdings in investment funds through what are called share exchange schemes - those run by Flemings and Mercury are free.

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