I wonder what kind of Impact the following story has on the Broker firm Allocations and also the Final price
Would everyone on this thread kindly input your estimates on items 1 to 6 please. In that order, so that we can see how we fared at each stage of the IPO. Please enter your estimate values for 1 to 6. Tha
October 26, 2014 Financial Review Sunday program, featuring the Medibank crackdown,
MEDIBANK CRACKDOWN Deborah Knight, Channel 9: A Street Talk exclusive on the Medibank Private float this morning. We can reveal the government is getting involved in an unprecedented way. Anthony Macdonald has this breaking story and joins us now. What’s the government planning? Anthony Macdonald, Street Talk editor: Well, the government’s preparing to crack down on fund managers who are trying to get shares through the retail offer instead of waiting for the institutional book next month. Now, retail brokers are due to have their bids to the government on Wednesday and most of them have already submitted their offers ahead of this deadline. Now, the government’s been straight out on the front foot and told the retail brokers there are to be absolutely no institutional bids in their retail books. After a few floats recently we’ve seen fund managers miss out on shares in the institutional offer and have come in through the retail offer in order to get shares. Knight: So in light of this, are we expecting many fund managers to buy into Medibank in this way? Macdonald: Well, fundies have been thinking about it, because they’re quite concerned that they’re going to be squeezed at the float and be left by shares in the after-market rather than getting them straight up at the IPO. Now, domestic fundies have seen that Medibank has been out on the road for only one week and so far, the feedback from the retail brokers is that it’s going to be red hot and there’s a lot of demand from retail investors. At the same time, the fundies also know that Medibank advisors are being paid twice as much to sell the shares to offshore funds rather than the local funds, which looks like another tactic to make sure that this trades higher in the secondary market and that domestic fundies have to buy their shares in the secondary market as well as at the IPO. Knight: As you say, it’s certainly running hot. But how can the government actually control this? How can they audit the bids and the buying? Macdonald: Well, that’s the question Deb. It’s one thing to have a crackdown, but it’s another to really police it. Now, what we’re expecting is that the government and its sales team will look at the bids that the brokers put in, they’ll pick out the big ones – they’ve set a certain limit – pick out the big ones and make sure they’re going to true retail investors rather than funds who are dressed up to look like they’re retail. Knight: Yes, there’s so much riding on this float, Anthony, thank you. And for more breaking news on business deals keep across the Street Talk website and daily in the Financial Review. MEASURING UP MEDIBANK Deborah Knight, Channel 9: The Medibank float is certainly the hottest one of the year and this weekend, the company is heading offshore to continue its pitch to investors. But are local fund managers happy? We asked a number of them about their concerns, and put the questions to Medibank CEO George Savvides. Firstly, we asked if the company could balance demand for high shareholder dividends with reduced premiums for policy holders. George Savvides, CEO, Medibank: We think the balance is there, certainly for shareholders in terms of our power ratio that we’ve indicated and the earnings. But also the work that we’re investing in health cost, the way we are endeavouring to provide services through primary care, more effective servicing through primary care to lower the need for unnecessary acute care, all of those produce saves, and those saves find their way back into the cost of premiums. Reporter: Why haven’t rising costs been addressed? Savvides: Well, we’ve seen a significant lowering of our management expense costs, and in the trajectory they move right into the group around the average for the sector. Within our mix, we have some very important costs; a national distribution network of retail, 90 stores – so we can have a face-to-face relationship with our customer base, but also in the last three to four years, we’ve been investing heavily, hence the cost in replacing our very old core systems, around 75 per cent of core system change has already occurred and that cost was borne in the last few years and reflected in our management expense cost ratio. Reporter: Does the low cost ahm brand drag down margins? Savvides: It’s the highest, fastest growing health brand in the top 20 health insurers in Australia and it’s also contributing a profitable growth to Medibank. Reporter: Does ahm’s success create a problem for Medibank? Savvides: The core Medibank brand has slowed down in its growth rate, but the intention now is to – actually both brands are Medibank owned brands, they can work together. Some people in a different part of their life cycle are interested in a different price point and ahm could be a solution for them. So that part of the strategy hasn’t yet come to market. That’s the next stage of the development of the two brands together. Reporter: Are you the right boss, post-float? Savvides: I guess 13 years for a CEO is probably sufficient evidence alone of the ability to make a contribution over that time. And since we’ve been converted to for profit in the last five years, the record shows – and the history of the results – a very significant return of dividends to the shareholder. The organisation has performed well through that period of time, and as we move into the listing environment on the ASX, we’ve got that momentum and cost base in place and the experience where our two brands, going to market, I think continue a very good story going forward and I’m looking forward to being a part of leading that story. Knight: Medibank CEO George Savvides answering the concerns of fund managers who are certainly jockeying for share allocation. We also put the acid back on the fund managers themselves and asked what price they would pay for Medibank shares. Of the seven, we quizzed, six said they would definitely pay 16 times Medibank’s 2015 profit, five would pay 18 times that amount, while only two would pay 20 or 22 times that figure. Price is of course key to all of this and joining us this morning, Young Rich Lister and entrepreneur Ruwan Weerasooriya and AFR columnist Mike Smith, good morning to you both. So Ruwan, have you put in a bid through your broker for these shares? Ruwan Weerasooriya, Rewardle founder: Oh, look, I haven’t put a bid in – but that should be no judgement on the Medibank float, because I tend to have a background selling businesses to listed companies, rather than being an active share trader. But it certainly looks interesting. Knight: And what is a fair price, do you think? It’s quite a range – $1.55 to $2. Weerasooriya: It is a range, but I think the way that the float is actually being packaged and sold, as we talked about, so much demand with the funds and institutions running a micro cap now, we’d love to have funds looking for ways to try and get into the story around the back door. So I think what you’re going to see is a very strong aftermarket. So I don’t think anyone’s going to do too badly, no matter where it lands in that price range. Knight: And that seems to be the message from most people, that it will be a good deal. But will it still be, Mike, if it is at the higher range, up to that $2 mark? Mike Smith, AFR columnist: Well, that’s right. I think as a mum and dad investor, you’re probably not going to lose money on investing in this in the first year. But if the valuations – it’s good value at 16 times, but is it good value once you’re getting up to 20, 22? I think in the short term, you’re probably not going to lose money on this. Knight: People said that about Telstra too, but then that turned out a little differently. Smith: I don’t think it’s going to be a T3 though, where you make 40 per cent. Knight: Yes, OK. But the demand for shares, we know it’s certainly running hot, indicative from this government action that Anthony Macdonald mentioned. It’s surprising, I suppose – and quite unprecedented for the government to be taking this sort of action. Smith: It’s unusual, but this is an unusual float. It’s one of the biggest floats for years and it’s also a government float, so there’s pro-bidding all over this. So you’re inevitably going to get a lot of noise around this. The local fundies are also worried about foreign funds having too much access, so there’s a real bit of a scramble going on here. Look, the process isn’t illegal, but it sort of goes against the spirit of the thing. Knight: Yes – and Ruwan, how do you think that the float’s being handled? Some of the criticism is coming out. Morning Star was saying that the timing of this perhaps wasn’t so great, and maybe just a price should be set. Weerasooriya: Yes, but also I think one of the things that it does by having the floating is it probably allows it to land at a fair value based on some of that demand. I think then the question is are they artificially generating more demand by holding back and not just setting the price? Knight: Because that’s the concern, whether it’s bumping it up by holding it back. Weerasooriya: Yes and I guess we’ll see when it hits the board and the market speaks. Knight: We will indeed. It’ll be closely watched, that’s for sure.
