Thursday, June 9, 2011

Softlogic Holdings IPO - Sri Lanka closes 4.30pm June 9th 2011

These shares are offered at Rs29 each and according to the Registrars the IPO is already oversubscribed and therefore will close as permitted by 4.30pm today the 9th June 2011.

All the stockbrokers have endorsed this IPO and have recommended it as a buy. Being a Financial Adviser myself with intimate knowledge of the workings of the Sri Lankan Stock Market having worked in this very closely for a number of years, my advice is as follows:

Due to the oversubscription you can apply for some shares and sell your allocation on the first day of trading if you can even make a Rs5 profit. From then on it is downhill all the way and very soon the shares will drop below its subscription price. The reason it will not drop below that on day one is that the Brokers will keep the share price high so that they can gain some trading volume by buying and selling these shares on behalf of clients a few times to churn enough money for themselves at the expense of their clients. The average client is not likely to make more than a few thousand by applying for about Rs100,000 of shares so the risk in doing so is not worth the reward.

Have some common sense. How can a company open an IPO at 20times trailing earnings even though forward earnings for 2012 will price it at about 13 and forward to 2013 at 8 because both those are pie in the sky figures for an uncertain economy like Sri Lanka where real growth has stalled and the risk is greater.

In my humble opinion if you are a long term investor I would buy this share when it drops to Rs 20 before 2011 is out.

No comments:

Post a Comment