3 Things You Should Know About Saga’s IPO

The equity market is heating up! Investor confidence is rising, the economy is enjoying steady growth, and the private equity owners of companies like Saga want to take a piece.

More firms have listed on the stock exchange in the first quarter of this year than in the entirety of 2013. Today (20 May) is the last day you can apply for Saga shares either direct or through a broker.

If you go direct, your application needs sending by 11.59pm. Here’s what you should know about Saga’s impending IPO:

1 — Will the shares jump?

stock exchangeSaga will sell its shares at between 185p to 245p. This means that for £1,000 you can end up with 540 shares at most or, if the shares are priced at the very top end, as few as 408.

Saga is not expected to enjoy a Royal Mail (LSE: RMG)-style spike on the first day. Royal Mail, of course, soared by over a third, while traders have placed a price of 250p on Saga (a 2% increase).

If you buy the shares direct from Saga then after 12 months you’ll get one free share for every 20 you own. However, if you want to put the shares in an ISA, you’ll need to go through a broker.

2 — Private equity

By now, I hope, you’ve done your research; ergo you know what you’re buying.

Saga’s parent company, Acromas, is owned by the private equity groups Charterhouse, Permira and CVC. You’ll be in bed with them for at least 180 days, before which they won’t be able to offload any of their majority stake due to trading restrictions.

Most of Saga’s profits come from its insurance business (some 96%), but Saga wants to sell new products, such as wealth advice, to its 2.1m customers. Saga’s customers — over 50s — are part of a demographic which is set to surge from 22.8m to 29.1m in the next 20 years.

3 — Is Saga a ‘buy’?

Analysts expect Saga shares will trade at around 20 times earnings. The FTSE 100, by comparison, has a price-to-earnings ratio of 14.

Not necessarily a steal, then. But somewhat more sensible than the absurd valuations of some newly listed internet companies.

Saga intends to pay out about 50% of its earnings in dividends and the maiden dividend will be paid after June 2015.

You’ve still got time to register your interest for shares on Saga’s website. The ultimate decision to buy, of course, is solely your decision.

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Mark does not own shares in any company mentioned.