The Medibank Private IPO has been one of the most hotly debated and widely discussed listings in recent memory. In fact, it will be the second-largest IPO on the ASX (after Telstra Corporation Limited (ASX: TLS)) and the first new ASX-50 listing since the float of QR National, now Aurizon Holdings Limited (ASX: AZJ) in 2010.
The final price of the shares on day one is yet to be confirmed by the group managing the sale, however based on the extremely strong demand it's expected to be close to the $2 maximum price for individual investors and as high as $2.30 for institutions.
The million (or billion) dollar question is: "How will it perform on day one?"
Up, Down, or Sideways?
Now, to the Foolish investor this is of little significance other than a short-term confidence hit or boost, however I like to think about these types of things, so here are my thoughts:
Up: The Likely Scenario
The raw numbers suggest that investor demand for shares will far outstrip supply. The broker allocation of up to $1.5 billion has been oversubscribed by 7 times, with $12 billion in bids received, while a similar story is true for individual investor demand. Overall there is apparently $17 billion in demand for only $5.5 billion in stock.
Additionally, the IPO managers have been incentivised to allocate a reasonable amount of stock to overseas institutions as they will receive double the commission. It's believed that this will leave local institutions (including exchange traded funds) short of stock. They will be forced to buy on day one in order to bump up their exposure to levels required by their constitution.
All-in-all what this is indicating is that institutions and individual investors are unlikely to get the allocation they requested and will buy lots, early on November 25.
Sideways: Possible
I think most analysts and investors believe the shares will open higher than the offer price, but there's a possibility that some investors will then take the opportunity to sell out for a quick profit. This is common among smaller IPOs where long-term investors sometimes cash out on the opening day to crystallise a 'stag profit'. The early boost could be wiped out by investors keen to make a quick buck.
Down: Pretty Unlikely
The government and offer promoters have done everything they can to ensure a successful opening. Limiting supply to Australian institutions, capping the listing price for individuals, and incentivising overseas sales should almost guarantee that investors will not lose money on day one.
The big question for me though is whether Medibank makes a good investment. I've noted in previous articles (here and here) that the investment case from a growth and value perspective is weak at best. The Motley Fool has a list of great companies available to subscribers that have much better growth prospects over the long term.
