The Federal government has today announced that stockbrokers submitted bids for $12 billion worth of shares in Medibank Private.
But the government has only allocated $1.5 billion to brokers. In other words, brokers wanted eight times more stock than they were given. The government could also claw back a further 20% of that ($300 million), following the institutional Offer. The Finance Minister's office says that could happen to meet the policyholder and general public demand.
It means investors who have subscribed through their broker for shares in the private health insurer are likely to be heavily scaled back.
Even Medibank Private policyholders – who are guaranteed to get a 30% higher allocation – will see their bids scaled back substantially.
The news comes after the Broker Firm Offer closed yesterday, but retail investors still have up until November 14 to bid for shares in Medibank private.
Investors will find out the final price and the number of shares they will receive by Tuesday, November 25, after all offers have closed.
Based on the broker demand, it appears that retail investors will likely pay the guaranteed maximum price of $2.00 per share. Institutional investors can bid higher than that, and it certainly seems that if the fund managers want shares in Medibank, they will need to bid pretty high prices. Depending on the price they bid, Medibank will be valued between $4 billion and $5.5 billion (less than half what the brokers bid).
That could well mean Medibank Private shares soar when the company lists on the ASX on or around December 5. But analysts say even the $2.00 price per share is expensive.
Based on the expected dividend, Medibank would yield 4.2%, fully franked at the $2.00 share price, which is lower than the usual suspects, the banks, Telstra Corporation Ltd (ASX: TLS) and Wesfarmers Ltd (ASX: WES).
Not only that, but Medibank shares would trade on a P/E ratio of 21 times, much higher than other insurers Suncorp Group Ltd –(ASX: SUN), Insurance Australia Group ltd (ASX: IAG) and AMP Limited (ASX: AMP). Those 3 insurers also pay higher dividend yields.
Has the hype around the float overruled investors' commonsense? You bet it has.
