Before you subscribe, find out about the issuing company.
Read the prospectus and use the following resources.
Analysts
The book runner will have its own research on a stock
to be launched on the market, but assess it cautiously.
As a result of the corporate link, the analysts will
probably have a superior grasp of the company’s
business, but will also have good reason to feel sympathetic
towards it.
Some years ago, a leading syndicate banker confided
in me that, in bull markets, he and his colleagues
dictated what the analysts wrote. Regulations have
done much to end these glory days. Even so, bear in
mind that investment banking remains highly lucrative
for the firm that employs the analyst.
Make a point of listening to analysts in leading City
banks that are uninvolved in the deal. Of course,
these analysts too have their angle and may not always
put what they think in their written reports for fear
of offending companies. Analysts can also be wrong.
Press
Financial journalists are less knowledgeable than
analysts, but are not similarly juggling commercial
interests. They have access to experts and an ear
to the ground. Everybody makes mistakes but if the
journos collectively agree that a deal is over- or
under-priced, they are probably right.
National newspapers and consumer finance websites
are a useful source of news and gossip. If the new
issues bug bits hard, read Financial News, a gossipy
weekly trade magazine that has excellent coverage
of capital markets. For the online version, visit
www.efinancialnews.com.
Syndicate desk
If you ring the syndicate desk of the book runner
to a new issue, you may find a friendly person who
will discuss the deal, but don’t rely on it.
If a banker does let his or her tongue wag, read between
the lines. I have known bankers wax lyrical about
a book build, and how major institutions have already
placed big orders – then, hours later, the deal
is pulled, owing to lack of demand.
The grey market
Another way to monitor sentiment about a pending new
issue is to check the grey market price. This is the
value that the spread betting firms put on the shares
before the deal is priced. It applies only to a few,
high-profile share issues.
When publicized in the press, the grey market price
can sometimes have a disproportionate influence on
institutional and other investor sentiment. It is
based on, at most, a few hundred bets.
Be warned. Grey market prices are unscientifically
assessed and have proved an unreliable predictor of
pricing. In some share issues, the grey market price
has been high, but the stock has been priced lower
and, subsequently, has fallen further.
