Investors who applied for a stake in the highly anticipated Medibank Private (ASX: MPL) initial public offer (IPO) will be licking their lips at the potential profit windfall when the float opens next Tuesday.
Due to the enormous level of interest generated by the float, the indicative price range for the IPO has been increased to between $2.00 and $2.30 per share, up from the initial target of $1.55 to $2.00. This bodes extremely well for retail investors who applied for a stake given that the shares allocated to mum and dad investors have been capped at $2.00 per share.
That means that when the stock starts trading on Tuesday 25 November, investors who purchased shares will almost certainly make a stag profit. As an example, should the stock open for trade at the higher end of the new indicative range – at $2.30 – an investor who paid $10,000 for their shares will make a quick $1,500 – or a 15% gain. Not bad for just one day!
The upward shift of the indicative price range came as a result of the enormous level of interest expressed by investors regarding the IPO. While more than 750,000 Australians pre-registered for the float, applications for more than $16.8 billion worth of shares had been lodged by the close of applications. That's more than three times the initial value of Medibank at $5.5 billion.
As such, the Medibank Private float will now almost certainly surpass the $4.6 billion privatisation of QR National (now Aurizon Holdings Ltd (ASX: AZJ)) to become the largest government asset sale since the partial listing of Telstra Corporation Ltd (ASX: TLS) in 1997.
What this means for you
While this is clearly fantastic news for investors who will be allotted a stake in the health insurer, other investors who chose not to partake in the IPO will no doubt be disappointed. After all, no one likes watching a stock skyrocket unless it's part of their portfolio.
When I decided not to apply for any shares, I was well aware of the high likelihood the shares would open higher on Day 1, yet I chose to remain on the sidelines and forego the potential to make a stag profit.
As disappointing as it will be to miss out on that quick jump in price, I thought that even $2.00 per share may have been a little too much for long-term investors to pay for a good (but not spectacular) business. Over the coming months, the initial hype will likely decline and the share price could certainly follow, presenting value investors with a more attractive opportunity to enter a position.
Besides, with most of the market's attention focused solely on the pending IPO, there are a number of other companies trading at extremely compelling prices which are largely being ignored. While they might not jump 15% in a single day, they could be set to deliver investors with enormous profits in the years ahead.
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