It's a twist on the usual Halloween theme.
'Knock-knock-knock'.
You peek through the blinds.
It's the Medibank Private IPO, asking for money.
If you hand it over, you either get tricked… or treated.
But the catch is you don't know which until long after you've paid for it.
So what do you do?
Medibank's launch has attracted phenomenal amounts of interest from analysts, brokers, banks, fund managers, Foolish contributors, Mum and Dad investors, you name it.
My fellow contributors have dissected the IPO in a series of outstanding articles, covering the company from a multitude of angles.
The simple fact is, it's not that good an opportunity.
If we pretend for a moment that Medibank is an employee, working to make you money, he or she would be a reasonable one.
Shows up to work on time, is honest, reliable, has an OK work ethic. Not a bad person to have around.
But not a dynamic game changer, and not the kind of person you would hire at any cost and cling to in the face of financial Armageddon.
Based on initial investor interest, it's expected that retail subscribers will pay around $2 a share for a price to earnings equation (P/E) of 21.3, and a prospective dividend yield of 4.2% fully franked.
Of course what the company actually launches at is anyone's guess.
If you threw a handful of pebbles, you would hit 30 companies on the ASX with comparable dividends, better P/E ratios and equal or greater growth prospects than Medibank's estimated 6% per annum.
Macquarie Group Ltd (ASX: MQG) has a P/E of 16.4 and pays a 4.6% dividend (40% franked). It also has the added advantage of being one of the ASX's more reliable companies with a streak of profits over 40 years long.
Oil king Woodside Petroleum Limited (ASX: WPL) trades on a P/E valuation of 17.2, and pays a 5.9% fully franked dividend with the prospect of substantially faster growth than the Medibank IPO.
Even if you wanted to compare apples with apples, Insurance Australia Group Ltd (ASX: IAG) trades on a P/E of 11.5 and offers a 6% fully franked dividend.
Health insurer NIB Holdings Limited (ASX: NHF) is much closer to Medibank – despite the smaller $1.4b market cap – with a P/E of 20.4 and a yield of 3.4% fully franked.
In short, there are cheaper, faster growing, higher-yielding options out there, so why rush to join the Medibank IPO?
It's true that you might get a 'stag' profit in the first few days due to high broker interest, but I don't believe that will be too long-lived since the very high liquidity of the shares will see a lot of people selling to soak up any profits.
Secondly, as a rule of thumb roughly 50% of IPOs trade below their offer price in the first year out.
It happened to Ozforex Group Ltd (ASX: OFX) not too long ago, and even market darling Freelancer Ltd (ASX: FLN) has sunk close to its offer price after soaring over 200% in its first week of trading.
Third, the benefits of privatisation won't flow through to Medibank overnight.
Fourth, as Medibank itself has admitted, the potential for mis-pricing risk and claims could be incredibly costly, particularly when the idea that 35% of claims comes from 2.2% of policyholders is factored in.
Fifth, yes, Medibank enjoys a number of long-term tailwinds like an ageing population, and government pressure on individuals to increase their health cover. However, these factors will still be there next year, and the year after, so why rush in?
Combine all these points with a plethora of more rewarding companies to invest in, and there is very little reason to buy shares in the Medibank IPO.
Now before I come across as too prejudiced, it's not that Medibank Private is a bad investment per se.
It's just that in my opinion there are better ways to invest your money at the moment. Don't get caught up in the excitement, and instead control your emotions to make the best decision for your long-term financial future.
If you have applied for shares, think about putting some extra cash aside in case there are any falls, and for heaven's sake don't panic sell if the price does drop.
Investing is a long-term game, and the would-be fairytale of the Medibank Private IPO is only beginning when it launches, not ending.
Happy Halloween!
