Saga IPO attracts significant grey market interest

The upcoming initial public offering (IPO) of Saga has attracted significant interest in IG Index’s grey market ahead of the company’s floatation scheduled for May 23.

Grey market interest in Saga IPO

IG’s grey market, which allows traders to bet on where they expect Saga’s share price to close on its first day of trading, suggest that the lifestyle services group could be worth up to £2.92 billion, well above the expected floatation valuation of between £2 billion and £2.5 billion.

“Saga’s floatation is expected to be oversubscribed, which could see the market attach a premium to the share price when it starts trading,” IG analyst Alastair McCaig has said, as quoted by The Telegraph. “This price, which is driven by client trades, is at a premium to Saga’s own company valuation.”

If the traders are correct, Saga will join the list of recent IPOs including that of Royal Mail, Twitter (NYSE:TWTR) and Boohoo (LON:BOO), in which the share price jumped substantially on the first day of trading.

Saga is targeting private investors, especially its own customers, 700,000 of whom have declared an interest in buying shares. The company’s customers will be able to take part in the floatation with a minimum investment of £1,000 and will receive one free share for every 20 held after one year.

Applicants, however, might not receive all the shares they have applied for if excessive demand causes orders to be scaled back, as was the case with the Royal Mail IPO.

Despite the hype surrounding the upcoming Saga IPO, some analysts advise caution, noting that a Royal Mail repeat is unlikely.

The Times recently quoted Ed Croft of research service Stockopedia.com as saying:

There are a lot of company insiders and private equity investors selling out at this IPO. Would they really sell if they thought there was still a lot of upside?

Insurer unveils revenue drop ahead of IPO

In its 328-page prospectus published last week, Saga reported that its revenue for the year ended January 31, 2014, had dropped four percent year-on-year to £1.2579 billion, as compared with £1.3104 billion in the prior-year period.

Saga’s profit for the year came in at £109.6 million, representing a 3.3 percent drop year-on-year. Underlying earnings before interest, taxes, depreciation and amortisation (EBIDTA), however, rose 4.1 percent to £222.4 million.

FT Adviser yesterday quoted an unnamed banker with knowledge of the matter as explaining that Saga’s underlying EBIDTA gave “a true reflection” of value in the business, with the revenue drop reflecting the sale of one of the company’s cruise ships last year, as well as a decline in motor insurance, driven by lower premiums across the market.