Millions of us Brits will remember the television advertisements that swept the country. The ‘Tell Sid’ campaign created millions of new private shareholders in the then newly privatised British Gas, as the Conservative government of the time started to privatise the utilities.
At the time the minimum allocation was 100 shares, which would have cost applicants £135. Those still holding would be sitting on a tidy sum now, but most sold in the first few weeks for what they thought was a tidy profit. This is in contrast to the disastrous IPO of Railtrack in 1996, which left a large negative dent in investors’ portfolios.
So when David Cameron announced that there would be a similar retail offer to sell off the remainder of shares in Lloyds Banking Group (LSE: LLOY) at a 5% discount to the market value if the Conservatives win the imminent General Election, my ears pricked up. But are we likely to see a sharp rise on the first day of trading as all of these privately held shares flood the market? Let’s take a look…
It’s Not The Same
As most investors will be aware, the government had to step in to support Lloyds as the true extent of the financial state of the ill-timed takeover of HBOS started to emerge. The 10-year chart below tells the painful story that caused so much misery to so many private Lloyds shareholders, some of whom relied on the dividend income.
Despite the government continuing to sell its shares into the market, it still has a sizable holding, which will be subject of the retail offer to private investors. However, unlike the 2013 IPO of Royal Mail shares, the company currently has a listing and the shares are traded on a daily basis in any case. As such, I suspect that the market would price in any discount on offer to the private investor; I don’t think that there would be a quick buck on offer here.
It Can Pay To Hold
As holders of the British Gas shares will be able to tell fellow investors, it can sometimes pay to hold your shares. Indeed, Lloyds shares are trading on a forward P/E of under 10 times, less than the market average. They are also expected to yield over 4% as the bank returns to health and the dividend list – that’s significantly more than you could expect from one of its bank accounts!
With around 4 million private shareholders on the register already, Lloyds is already one of the most popular shares held by private investors. I think that could rise should the retail offer go ahead.
Would I Buy The Shares Today?
Personally, I am neither a holder nor a seller of these shares at current prices. Going forward, for my money there is too much uncertainty surrounding the outcome of the Election. Should Ed Miliband enter Number 10, I think that we can expect higher levies on our banks — this will make it more difficult for them to pay dividends and could well cause the share price to fall, as well. This is neither good for our capital or our income.
I’ll be waiting for the outcome of the Election before taking another look at these shares. Should we get some certainty and stability from our newly elected leaders, I would be happy to take a second look, as it could well have potential for capital growth, as well as attractive income qualities.
