This great stock could go from zero to theFTSE 100 in a week
My plan with The Right Side is to bring you ideas of how to make money from the markets. We've had some great success lately trading the FTSE. And another big theme has been commodities, where we're long gold but we've been wary about silver (thankfully!)
And, of course, I like to write about great stock stories too. Usually these are already trading in the secondary markets. But occasionally a new listing or initial public offering (IPO) grabs my attention. And if I think it can make you money, I'll tell you about it.
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Now the last time I discussed an IPO was about a year ago, when fashion label Supergroup (SGP) floated on London's exchange. I really hope you were in on that one. If you took my advice and tucked in, then you could have doubled or even tripled your money.
Well today the marketing campaign starts for a massive new IPO. I'm not promising another Supergroup, but I'm looking to get involved and I think you should take a look too. I think there'll be a good chance for a decent profit here.
The creation of a new FTSE 100 giant
The company is called Glencore. If you read the financial pages of your newspaper, you've probably seen the name. This IPO has been talked about for months. If not, that's going to change. It's going to become a household name.
At 7am this morning Glencore announced an indicative price of £4.80 to £5.80. Taking the middle of that range would make it worth some £36bn. That would put it straight into the FTSE 100. And if it was to float at the top end of the range, it would be one of our largest ten companies!
Now, Glencore is a Swiss company, but because its main listing will be on the FTSE 100, many of our pension and insurance funds will end up as big holders. That means you'll probably end up being a shareholder anyway. But I want you to take on a bigger slice of the action. You need a better way in.
Glencore is a truly unique business. Having almost gone bust 37 years ago, its management bought into the company and the whole thing took off. It gained notoriety as a highly secretive business, owned by a clique of multi-millionaire partners.
It's a miner, commodities trader and industrial giant. On top of that, it has massive shareholdings in public commodities giants such as Xstrata (owning 34.5%) and Russia's Rusal. And this diversity makes it a difficult stock to value. But that's exactly what we need to do.
As of today, Glencore and its advisers are busy touring global financial institutions trying to get a feel for what investors are willing to pay for a slice of the action.
Ultimately, I reckon the valuation will end up on the cheap side. This could leave us with a decent opportunity.
Ignore press complaints about a sell-out'
The most important question about any IPO is why are the insiders selling? What do they need the money for and into whose pockets is it going?
And on this point, there's a lot of rogue information doing the rounds at the moment - so watch out!
You'll see this sort of guff: "Glencore's top brass are seasoned traders. They know when to sell and they're selling at the top of the commodities market. Don't touch Glencore with a bargepole!"
But I think that's rubbish - the facts just don't stand up. For starters the big guns can't sell their shares for five years. Even senior managers are tied in for betweentwo andfour years! In fact, the top brass have specifically put their faith in the fact that this is not the top of the market.
And there's an even bigger reason to suspect management sees this commodities bull marching on. That's obvious when you see what they want the new money for.
Management wants to use most of the cash raised to increase their stakes in the commodities markets.
Like us, they see a commodities super-cycle. These are smart guys that are in the know. They are raising money because they reckon there's more cash to be made in commodities.
All right, some $2.2bn (of the $10 - $12bn raised) will go to paying taxes due as a result of the offering and repaying some director loans. But I tell you, that is not a management cash-out'.
And there's no shortage of outside interest in this business either. Today's release says 31% of the new shares have already been placed. The FT reports that the float is already rumoured to be oversubscribed. And yet the price hasn't even been set!
Mega-rich sovereign wealth funds from places such as Kuwait, Qatar, Singapore and Abu Dhabi are queuing up to get a slice of the pie, says the FT. And don't forget all the tracker funds that will have to pick up stock too - remember, the stock goes straight into the FTSE 100.
Wait for a chance to pick up stock on the cheap
Despite all this interest, there are two reasons why I think Glencore will float at a keen price.
First, you've got to realise that these guys aren't looking to offload many shares. Talk is that they'll float less than 20% of the company. And letting these shares out on the cheap can be good news for the originators.
Remember, 80% of the shares rest with the partners. They want these holdings to go up in value. If they sell their 20% on the cheap, then the stock chart is likely to start on a nice upward trajectory. And a stock on an upward trajectory looks good to buyers - especially technical traders and the computer bots that are so heavily involved in the markets these days.
And there's another reason I think this issue will go well.
There's an awful lot of money looking for a home right now - and commodities look like a sanctuary. And this company is more than just a play on straight commodities. It's a shrewd outfit capitalising on mining, trading and right through to industrial production. It's one hell of story.
In fact, such will be the interest in this IPO that I'm not sure if private investors will get a look in here. But even if you can't get direct access, there's usually a way in (your best bet might even be a share dealing account) - and as information about the float emerges, I'll let you know how to get a seat at the table.
For the moment Glencore will do the rounds courting the City grandees. By 19 May the price will be firmed up, and trading will start on 24 May.
I'm keeping a close eye on these guys. I'm sure it's going to be a tough job to get hold of stock. But stick with me here at The Right Side and we'll see how we could make a few quid out of this massive new company that's about to land on our doorstep.
This article was first published in the free investment email The Right side. Sign up to TheRightSide here.
Your capital is at risk when you invest in shares - you can lose some or all of your money, so never risk more than you can afford to lose. Always seek personal advice if you are unsure about the suitability of any investment. Past performance and forecasts are not reliable indicators of future results. Commissions, fees and other charges can reduce returns from investments. Profits from share dealing are a form of income and subject to taxation. Tax treatment depends on individual circumstances and may be subject to change in the future. Please note that there will be no follow up to recommendations in The Right Side.
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Bengt graduated from Reading University in 1994 and followed up with a master's degree in business economics.
He started stock market investing at the age of 13, and this eventually led to a job in the City of London in 1995. He started on a bond desk at Cantor Fitzgerald and ended up running a desk at stockbroker's Cazenove.
Bengt left the City in 2000 to start up his own import and beauty products business which he still runs today.
Bengt also writes our free email, The Right Side, an aid for free-thinkers on how to make money across financial markets.
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