Be glad you couldn’t buy Eircom shares at re-flotation!

THE 500,000-plus who lost heavily in the first Eircom flotation are thanking their lucky stars they did not get the chance to buy into the telecom’s second coming.

Since the re-flotation, the shares have failed to rise above its launch value of €1.55 a share.

At the start of the week, they were down at €1.35, a fall of 13%, while they are currently off over 6% as markets show virtually no interest in driving up the stock by buying into the Eircom story.

Some analysts are still surprised they got the launch away at €1.55 given the relatively weak outlook for the group.

Bloxham Stockbrokers analyst Peter Jackson says several factors have influenced the share price to date.

The 7.5% dividend was crucial and those who bought into it were doing so to boost fund yields. Capital growth was not the initial aim of the investment. And given the circumstances, he doubts if a capital gain will feature in the group in a very significant manner for some time.

The born again Eircom has been saddled with €2 billion in debt.

It is also looking at low growth prospects, and the high debt could prove a major barrier to buying back into the mobile business, which offers the best growth prospects going forward.

Overall, the picture being painted is of a company that could mark time over the next few years. So small investors can be grateful that they were not offered the same opportunity to gamble on the stock this time round.

Having lost about one-third of their overall investment in the initial flotation, they are still not clear of the spectre of Eircom hanging over them.

The big funds who have bought in are mainly operators of pension investments and if Eircom continues to tank, it will affect fund values. Right now it is facing challenges on deregulation that will lead to greater competition on land line business.

It is seriously under-invested in broadband, preventing it growing sales in that fast-expanding area that is also becoming highly competitive into the bargain.

Future earnings are hard to predict, with many analysts of the view the group will struggle in the years ahead.

Meanwhile, just be glad you could not buy the shares, said Jackson.