Alluring venture but not for stags

THIS is the last weekend before the deadline for submitting applications for shares in the 3i flotation.

Applications must be received by 4.30pm on Wednesday. But the rail strikes threatened for Tuesday and Thursday will disrupt postal services. So it may be wise to post applications by Monday.

3i is owned by the big banks, which are all selling part of their stakes. It invests in 3,400 small companies, which reduces the impact of any individual business failures.

Justin Urquhart Stewart, director of business planning at Barclays Stockbrokers, believes 3i will appeal to people with an established portfolio who want to move into smaller companies without taking too many risks. 'We know more about this company than most venture capital companies, but it's not for grannies, widows or orphans, or for Sid.'

It will not produce a high income and is not eligible for inclusion in a personal equity plan. But 'it's a 'buy' for the right person,' said Mr Urquhart Stewart.

Andrew Gregory, investment director of Kleinwort Benson, said there was no great rush to invest in 3i. 'We are keen on the company in the long term. Over time, it will form part of our client portfolio, but we are not actively recommending it in the current market. It is unlikely to go roaring off to a premium.'

But the company points out that buying in the aftermarket would add about 6p to the share price. The shares are being sold at 272p, a discount of 3.5 per cent to the net asset value. Dealing begins on 18 July.

Three quarters of the shares were placed with institutions. There was demand for 1.7 times the number of shares available. If all this demand was to be satisfied, it would more than mop up all the shares allotted to private investors.

Peter Walls, investment trust analyst at Credit Lyonnais Laing, is not keen on the issue and believes existing venture capital trusts such as Murray Ventures, Electra and F & C Ventures offer better value.

He said 3i should have been priced at a 15 per cent discount to the value of its assets, rather than at 13.5 per cent. 'If you take a long term view - more than five years - then the state of the markets should not influence you to waver from considering this company. But I would suggest a safer route would be to use the savings scheme. The interest-rate cycle has turned, which is bad for smaller companies.'

A savings scheme to be introduced at the end of the year will allow investors to make small monthly savings, helping to iron out any volatility.

Eric Hawthorn, at stockbrokers Henderson Crosthwaite, said :'It's quite nice to get something as solid as this. If you want to invest in venture capital, everything else has been small and suffers from volatility. Here, at last, there is one company of solid size.

'We think it will go to a premium, but in this crazy market you never know what will happen. But it is solid; it will get off and should be supported.'

Mark Dampier, investment director of independent financial advisers Whitechurch Securities, said: 'It's a good long- term buy, but not a stag. New issues have been faring extremely badly lately.'