Going Beyond Gloss to Sound Out IPO's
Financial Review: 16th October 2014
Peter Horsfield, founder of financial planning business SMART Advice, reminds investors that there’s no stamp duty or brokerage fees to pay when buying shares through a prospectus. Buying into IPOs can also help investors to diversify their portfolio. In addition, investing in a company as an employee might mean you can buy the shares at a discount to the issue price, or use share options to increase your future salary.
But he warns investors that if the IPO is for a well-know company, then the listing price is generally fully valued. So don’t expect the value of your investment to immediately rise once the shares list. He also says it can be hard for retail investors to get access to an offer if only limited shares are available.
“Investors should also be aware that sometimes forecasts are inflated to attract shareholders. This can be hard to assess if there’s limited historical financial information available about the business, which can increase investment risks.”
Horsfields urges IPO investors to look for historical success. “If it’s a well known business at least you have a better chance of understanding its performance before investing.
“The idea is to research the value of assets the business owns, and its current income and expenses, rather than focus too much on forecast income. If you can, visit their office and ask to interview directors and staff. And don’t gamble what you cannot afford to lose.”