Medibank Private Share Offer..

"Investors will not know what the final price is until the big institutions buy their stakes after the retail offer has closed.".
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I am surprised by this too. The government sets the price after you have given them your money.

What if a retail buyer is happy to buy at $1.80 but not at the $2 mark? If the government sets the price at $2, buyer then has to say, 'No thanks. Please give me my money back.'

$2 share price equates to 21 price to earnings--is that right? A bit high.

What's the likelihood of shares dropping the first couple of days?
 
Just read this article ( https://au.news.yahoo.com/a/2530907...-whether-it-is-a-value-investment/?source=wan ) online while trying to find out some more info/professional opinions on the float and was astounded at this statement, "Investors will not know what the final price is until the big institutions buy their stakes after the retail offer has closed.".

Now I have very little experience with shares and IPO's so can someone tell me if this is common? Am I understanding correctly that you as a potential future shareholder will be applying to buy shares you don't know the price of?

Thanks.

I've only experienced this with government floats (QR National was sold by the Qld Gov. this way). With the QR float the final share price was toward the bottom of the indicative price range.
 
I am surprised by this too. The government sets the price after you have given them your money.

What if a retail buyer is happy to buy at $1.80 but not at the $2 mark? If the government sets the price at $2, buyer then has to say, 'No thanks. Please give me my money back.'

$2 share price equates to 21 price to earnings--is that right? A bit high.

What's the likelihood of shares dropping the first couple of days?

The television experts or the government authorities or Leading-Economists don't seem to think it will pan out that way,,but that is the problem with big opportunities, they sometimes come with big surprises and from what I'm reading all the economis forecasters in Australia-Asia-USA are all saying this is "buy" no matter what the price,but they always say that to stay in line with everyone else..imho..
 
What if a retail buyer is happy to buy at $1.80 but not at the $2 mark? If the government sets the price at $2, buyer then has to say, 'No thanks. Please give me my money back.'

This is what I was thinking too, seems really odd to me but as I said I've never had much exposure to this kind of thing.
 
It seems that demand will be high, but there are some saying to be careful.

Medibank?s investment portfolio is larger and has twice the exposure to equities of listed insurer NIB, and Intelligent Investor analyst Graham Witcomb warns Medibank?s earnings ?will be hit hard? if stocks fall materially.

?As equities are a more volatile asset class, this leads to lumpier investment income for Medibank, so investors should be prepared for more volatile overall profits too,? he says.


Peter Esho, managing partner of wealth management business 100 Doors, says investors shouldn't count on making a lot of money quickly.But he believes the float is worth buying into for the longer term.'It should only be viewed as a long-term investment. It will take at least five years for the full benefits from the privatisation to flow through,' he said. - See more at: http://www.skynews.com.au/business/...dibank-worth-buying.html#sthash.46eD284N.dpuf
 
Thought I'd share a partial cut/paste of Lonsec's research on MPL.....no warranty!

Lonsec Equities - IPO Research
Medibank Private Limited (MPL)
COMPANY ; MEDIBANK PRIVATE
LONSEC RECOMMENDATION ; SUBSCRIBE
PRICE TARGET ; $2.33

Lonsec expects Medibank Private Limited (MPL) to generate 6% p.a. compounded earnings growth over FY15-17 and offer a yield of around 4.0% fully franked. Our FY16 valuation target is $2.33/share. This represents a 16-50% premium to the proposed initial public offering (IPO) price range, as such we recommend investors subscribe for shares in the IPO.

Summary
The initial public offering of MPL, which is the largest privatisation since Telstra, offers investors exposure to a market leading private insurance business with a strong balance sheet, solid brand, moderate growth potential and favourable macroeconomic and industry dynamics.
MPL is Australia?s largest private health insurer, with 3.8m members and a 29.1% market share. Its core business is the underwriting and distribution of private health insurance (PHI) products (i.e. Hospital and Extra?s cover) through its two brands, Medibank and ahm. Upon listing, it will rank within the ASX100.

Favourable government and regulatory policies have helped MPL grow its member base from 1.6m in 2004, to 3.8m today, making it the largest private health insurer in Australia. Similarly, operating profit growth has been impressive, at 21% p.a. since FY12, however, we expect future growth to be closer to 6% p.a, given that the easy cost cuts have already been made. The balance sheet is strong, being unlevered and in a net cash position of $2.2bn. Based on our estimates, we expect MPL to deliver investors:

- 3-year EPS & DPS growth of 6% compounded annually;
- A fully franked FY16 yield of 3.9-5.1% (5.6-7.3% grossed-up); and
- An above average return on equity (ROE) of ~18%.

In Lonsec?s opinion, the biggest risk to the business is any adverse change to government & regulatory policies and volatility in investment income.

Offer Summary
The purpose of the offer is to provide the Commonwealth government with an opportunity to sell down its entire shareholding in MPL. Retail investors are invited to apply for shares, at a maximum price of $2.00/share, under the Retail Offer, which consists of the Broker Firm Offer, General Public Offer and Policyholder and Employee offers. Lonsec expects the offer to be oversubscribed, and therefore investors should expect some scale backs.

Key Strengths
- Stable financial profile, defensive earnings with a long track record of profitability, earnings growth and strong cash conversion.
- FY16 fully franked dividend yield of 5.6-7.3%, grossed up for franking credits.
- Positive industry fundamentals which include a growing, ageing and increasingly wealthy population.
- Supportive regulatory environment that encourages PHI participation and equalises claims risk across the industry.
- Largest PHI provider in Australia, which provides MPL with purchasing power and competitive advantages.
- Cost out potentials provide scope for short term profit gains.
Key Risks
- Any adverse government policy and regulatory changes.
- Lower than expected investment returns .
- Higher than expected claims costs.
- Weaker economic conditions causing higher policyholder lapse rates.
- Any unfavourable contract terms with healthcare providers.
 
- An above average return on equity (ROE) of ~18%.

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nice to quote return on equity without highlighting price to book value.

A nice little trick out there, yes high ROE is one indicator of a quality business.

BUT YOU ARE NOT SELLING ME THE SHARES AT BOOK VALUE, THEREFORE THAT ROE OF 18% IS NOT WHAT I WILL BE GETTING ON MY PURCHASE PRICE

My purchase price will be based on the multiple to book value.

The higher the price to book value the LOWER WILL BE MY RETURN ON EQUITY.

For the new investors out there it is very easy to get a rough guide on book value.

Just look at 3 things:
(a) the equity in the latest presented balance sheets
(b) the number of shares on offer.

Use (a) + (b) to calculate book value per share.

Compare this figure to the issue price and that's the multiple you are paying above book value.

To track this against the 18%,
18%/book value multiple.

So if the book value multiple is 2, your return on equity is 9% (see how quickly it shrinks).

Now the next question to think of for long long term holding, is how fast the revenue figure can grow (not cost cutting as all the hype is making out, cost cutting can only go so far.)


WHY HAS CSL BEEN SUCH A GOOD INVESTMENT, 2 factors
(a) HIGH ROE (with low debt)
(b) continuously growing sales over 30 years.

WILL MEDIBANK PRIVATE BE ABLE TO REPLICATE THIS????????
No, its a mature industry, with lots of competitors in the market and servicing only a single market (ie Australia).

For me sorry but Medibank is a buy and flick, not one to put in the bottom draw.
 
Yep MPL a 2 x book, with their underwriting history looks steep, particularly in light of US opportunities like the mighty BRKB at 1.4x book, Markel 1.27 x book, Alleghany 1 x book all who have far better outlook than MPL and know how to use their floats. That said, I've placed broker firm bid with tick and flick in mind.
 
Just look at 3 things:
(a) the equity in the latest presented balance sheets
(b) the number of shares on offer.

Use (a) + (b) to calculate book value per share.

The underwriters are in the business of selling for profit (and fees for themselves), therefore, are under no obligations to give information in the form that can be easily dissected in the way they dislike.

But here they are:

(a) Equity in balance sheet @ 30 June 2014 = $1,393.9m

(b) Number of shares on offer
= Expected market capitalisation / Price per share
= $4,269m / $1.55
= 2,754,000,000 shares
(answer is the same when using the top estimation, i.e. $5,508m / $2.00)

(c) Book value per share
= Equity / Number of shares
= $1,393.9m / 2,754,000,000
= $0.5061

Dear, dear, dear...
 
As Keith explained in post #26, institutions need to get enough % weighting of this stock in their portfolio.

Since they are unlikely get enough via the share allocation process, they have to buy extras from the open market.

The high demand for this share in a short time frame creates a price lift.
 
I went into the site last night ,went as far as you can before there is no way back,, then waited and had a think,i just don't like not knowing the numbers one will be allocated because it's very very hard to make predictions ,especially about the future,plus I don't think I can get the numbers I want prior,so one would be investing blind,but on the day it opens in the first 10 minutes I will get what ever numbers I want..imho..
 
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