Medibank Private: Last calls for a stag profit bonanza

Medibank Private is shaping up to be a roaring success for the Government and IPO investors could be set to profit too.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

With less than 36 hours to go before the Medibank Private General Public Share Offer closes, investors yet to place a bid are running out of time – the official close time is 11.59 pm  (AEDT) on 14 November.

It's certainly understandable that retail investors may have lost interest in this super-hyped initial public offering (IPO) given…

The structuring of the offer leaves a lot to be desired.

Firstly, there is an indicative share price range of $1.55 to $2 but retail investors have no idea of the final price that they will pay until after the fact! It's a bizarre situation – how often do you pay for something and then ask what it costs?

Secondly, the huge demand for this IPO makes it likely that the shares will be priced closer to $2 and also that a significant scale-back of bids will occur. This is a double whammy for investors – they are likely to end up paying a very full price for the stock and they may only end up with a small, inconsequential holding.

…but then there was The Stag!

A "stag profit" refers to an immediate profit being realised when an IPO'd stock lists at a premium to its float price.

The negatives highlighted above are also the "cause" of perhaps the one major positive. All signs are pointing towards Medibank Private's shares listing at a premium to the final price and thereby providing a "stag profit" for IPO investors.

This means investors stand to make an immediate windfall when the stock hits the ASX on 25 November. Of course while this is a pleasant situation, given the quality of the company, most investors will be viewing their shareholding as a long-term position in their portfolio. Given the long-term gains from owning other privatised government organisations such as Commonwealth Bank of Australia (ASX: CBA) and CSL Limited (ASX: CSL), a long-term holding period for Medibank Private shares could make sense too.

Thus, investors are more concerned with having their desired amount of stock allocated in the IPO than simply hoping for "the stag" as potentially they may never get the opportunity to purchase shares as cheaply in the aftermarket as they do in the IPO.

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

More on ⏸️ Shares to Watch

asx share price rebound represented by wooden blocks spelling rebound with coins on top
⏸️ Shares to Watch

Could the Zip (ASX:Z1P) share price make a comeback in 2021? 

The Zip (ASX: Z1P) share price struggled to outperform in the second half of 2020. Could 2021 be a better…

Read more »

⏸️ Shares to Watch

What next for the a2 Milk (ASX:A2M) share price?

Could you call the A2 Milk Company Ltd (ASX: A2M) share price a cheap growth stock after it slumped to…

Read more »

⏸️ Shares to Watch

What's in store for the Afterpay (ASX:APT) share price in 2021? 

The Afterpay (ASX: APT) share price has surged more than 275% in 2020. Here's a little of what investors can…

Read more »

wondering about asx share price represented by man surrounded by question marks
⏸️ Shares to Watch

Is the Zip (ASX:Z1P) share price a buy yet?

The Zip Co Ltd (ASX: Z1P) share price continues to underperform despite an exciting capital raising. Could it finally be…

Read more »

questioning whether asx share price is a buy represented by man in red shirt scratching his head
⏸️ Shares to Watch

Should you buy the Appen (ASX:APX) share price dip?

Could the Appen Ltd (ASX: APX) share price be a buying opportunity after its recent selloff? We take a look…

Read more »

Share Fallers

Why this broker thinks it's time to buy Qantas (ASX:QAN) shares

As state borders re-open to domestic tourism, this broker thinks it could be time to start buying Qantas Airways Limited…

Read more »

wondering about asx share price represented by man surrounded by question marks
⏸️ Shares to Watch

Could this be why the Zip (ASX:Z1P) share price is underperforming?

Could this be why the Zip Co Ltd (ASX: Z1P) share price is down 50% from its August highs and…

Read more »

Hands grabbing for high rung on a ladder pointing to the sky
⏸️ Shares to Watch

The Rhipe (ASX:RHP) share price has jumped 8% today. Here's why.

The Rhipe Ltd (ASX: RHP) share price has popped 8.59% after announcing its first quarter FY21 update. Here's the run…

Read more »