Buying new issues
March 2nd, 2007 Ogbuotobo Chuks || chuks@stockmarketnigeria.com
By ogbuotobo Chuks
The primary market of the exchange will this year be very active as more and more companies are seeking to raise fresh funds to boost their operations. With the wide popularity of public offers, the market seems to remain fertile for primary issues irrespective of the bearish run in the secondary market.
Buying shares as new issues has some advantages over buying them through a stockbroker in the exchange but hold on. Do not assume that because public offers are now coming with great innovations in marketing, you are sure of getting value for you money at the end of the day.
The first advantage of new issues is that they are commission free. There is no stockbroker involvement in the process of investing in new issues. The issuing house and all the other parties involved in the security issue process are paid by the issuing house from the offer proceeds.
The second advantage is that there are usually in-built discounts in public offers, which creates a profitable opportunity to buy the new shares below their ruling market price. N respect of rights issues, even more attractive discounts are often given to existing shareholders.
Below are some vital keys you should look at.
Test for sound operating quality
Whatever advantages new offers may hold, they are in no way an alternative to the need for sound operating quality of the company floating the offer plus convincing indications of a promising future. Without the strength of fundamentals, those advantages will wear out with time.
There is no guaranty of instant profit on a new issue when the price of the stock begins or resumes daily movement on the stock exchange. It is possible that the price may even drop below the price you paid for a unit n the issue. In that case, it would have been better to wait and buy shares in the stock market.
Clues to an offer success.
This is one of the key points of consideration to guide your decision whether to invest or not. You need to have a fair idea as to whether the stock is likely to suffer a price decline or trade at a premium when the new offer closes. The clues to this will come from the demand and supply functions affecting the offer.
If the company offering its shares is doing well or is expected to do exceptionally well in the future, very many people will want to subscribe to the issue and the offer may be oversubscribed. This creates the conditions fort a stock to appreciate in price once the technical suspension on price movement is lifted.
(No Ratings Yet)
Loading ...