Saga IPO: Fund managers say group has to trim float price

on May 21, 2014
Updated: Apr 9, 2020
Listen, Wednesday, May 21: With just a couple of days before Saga is due to set the price for its initial public offering (IPO), The Telegraph reports that a number of fund managers have warned that the over-50s group will not achieve the top of its price range.

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**Saga unlikely to achieve top end of price range**
Saga, which will float on the London Stock Exchange this Friday, unveiled its price range earlier this month, noting that it expected its shares to be priced at between 185p and 245p each, with the guidance suggesting a market capitalisation of up to £2.5 billion. (Value of lifestyle group at up to £2.5bn)

The Telegraph yesterday quoted Henry Dixon, who runs the GLG Undervalued Assets fund, as expecting Saga’s shares to be sold at the “lower end” of the price range.
Chris White, the head of UK equities at Premier Asset Management, also told the newspaper that the over-50s group would “have to come down the price range”.
“The market for floatations is getting tired,” White said. “You just have to look at the number of recently floated companies trading below the float price.”

One such example is Pets at Home (LON:PETS), the UK’s largest pet retailer, which floated on the LSE in March at 245p per share, within its earlier guidance of 210p to 260p. (Pets at Home shares still trading below offer price) Pets at Home’s share price, which set a post-IPO low of 192.50p last month, stands at 210.75p at the time of writing.

**Retail investor demand**
One unnamed fund manager told The Telegraph that Saga’s valuation was “a joke”. He, however, added: “Most of the major institutions are saying no way as far as I can work out, but there is big demand from retail investors, i.e. Saga customers.”
The insurer is targeting private investors, especially its own customers, 700,000 of whom have expressed an interest in the Saga IPO. The company has offered its customers and employees one free share for every 20 held after one year, and has also said that it will be looking to pay out between 40 percent and 50 percent of the group’s net income as dividends.

The Financial Times last week quoted Michael Hewson, chief market analyst at CMC Markets, as saying that the Saga IPO was “tapping into a vein of confidence” following Royal Mail’s (LON:RMG) floatation and that investors were looking to get on board what was “potentially a fairly good long-term growth stock”.
“Saga caters for a certain demographic which will expand substantially over the next 20 years, so from that perspective, it could be interesting,” Hewson added.
Other analysts have in recent days advised caution, warning that a repeat of the Royal Mail IPO is unlikely. (Saga IPO: Analysts advise caution ahead of float)
Saga’s IPO is scheduled for Friday, May 23, while unconditional dealings are expected to start next Thursday.


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