Should I buy Freeserve?

By DAILY MAIL REPORTER
Updated:

 

More than a million web surfers will get priority on applications for shares in Freeserve, the giant internet provider that's being partially sold off by parent company Dixons.

And just to prove that this stock is aimed at web-wise investors, anyone interested in buying shares can register their interest only via the internet.

The sale is aimed at Freeserve's 1.25 million customers who can apply for as little as £250 worth of stock.

As yet, though, they won't know whether it's worthwhile because the issue price hasn't been set. Experts think that the shares will be priced to go - in other words, they'll be cheap - because Freeserve wants to encourage its users to buy shares to lock in their loyalty.

But should surfers sink their money into Freeserve? As with any new issue - remembering back to the privatisations of the Eighties - investors can be caught up in the hype.

Last year thousands of investors rushed to buy shares in travel company Thomson at 170p a share when it was floated on the stock market. Today the shares are hovering at around 137p.

And internet stocks are potentially highly volatile. Although relatively new to the British stock market, they seem to have had their day in America.

A year ago, shares in stockbroker Charles Schwab - which does much of its business through the internet - were trading at $18. They peaked at $154 before falling back to today's level of close to $90 - all within the space of a year.

Stockbrokers are divided on whether Freeserve is likely to be a hit, miss or maybe for private investors. All point out that without knowing the issue price, it's still hard to judge.

In addition, Freeserve is not making money. From its launch in September to last month, its revenue was £2.73 million but it made a loss of £1.04 million.

One of the major sticking points is the valuation. Freeserve's bankers suggest that it could be worth about £1.7 billion. But there are no other British companies to compare it with, which makes valuation difficult. Added to that, the valuation suggests that Freeserve's 1.25 million customers spend more than £1,000 a year each on the internet.

Andrew Christian, director of stockbroking at Hargreaves Lansdown, says: 'The valuation looks expensive. It could be years before it makes profits. If you want to invest in the internet, then it should be as a long-term investment.'

Jeremy Batstone, head of research at NatWest stockbrokers, is similarly cautious 'I think it's caveat emptor big time. Freeserve is not making any money at the moment. 'Added to this, Freeserve is hoping its 1.25 million subscribers stay loyal, but now everyone's doing the internet.

'Investors should be going in with their eyes open: it may be better to wait and see how the shares do after they've floated.

'And take a tip from Warren Buffett, the legendary U.S. investor, who says, 'If I don't understand a company, I don't invest in itî.'

However, Barclays Stockbrokers' Justin Urquhart Stewart is far keener. 'I think it's easy to understand Free-serve if you think of it as basically an electronic mail order firm rather than an internet provider.

'I think Freeserve's got a lot going for it. 'By encouraging its service users to invest, it's helping to create loyalty. After all, if you invest in a company you're going to carry on using its products rather than a rival's.'

Dixons is selling off only 18.25 % of Free-serve, which is headed by the company's chief executive John Clare.

You can register your interest in the issue - which doesn't compel you to buy shares - via Freeserve's homepage, www.freeserve.net, by July 9.

Private investors can apply for shares only if they have registered online. Mini-prospectuses and application forms will be sent out from July 12.

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