View from City Road: Tiddlers return to favour

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BUYING shares in companies floating on the stock market is proving to be one of the smartest ways of making money in current conditions. Many of them are going to a sizeable premium.

Yesterday it was the turn of PizzaExpress, the restaurant chain brought to the stock market via a reverse takeover. In first dealings the shares surged up from 47p to 81p and, judging from the mood, may have further to go.

Many recent stock market entrants have run up astronomical ratings due to a 1980s- style speculative bubble. Tadpole Technology, placed at 65p three months ago, is trading at 305p. Dorling Kindersley, launched at 165p, has surged to 294p, and Tepnel Diagnostics, floated at 120p, is up to 245p.

Sheer greed apart, the current euphoria is partly due to returning interest in tiddlers, which are benefiting from lower interest rates.

Smaller companies have easily outperformed their larger brethren in recent weeks. Investors may also be waking up to the fact that buying a new issue is far cheaper than buying through the market.

Corporate advisers have notably failed to anticipate this tidal wave of interest. In many cases they have seriously under-estimated the level of demand for shares and as a result vendors have lost out. While it is difficult to draw a line between achieving a fair launch price and a healthy after-market, these spectacular performances imply that some of the current batch have been underpriced.

In their defence, advisers might argue that interest in new issues is often transitory and it could evaporate, as it did - for a time - in the US last year.