Promina tipped to go at closer to $1.50

Having mailed out prospectuses last week, Promina is now accepting applications from retail investors, who will be applying without knowing what price they will pay. However, they will get a 10c discount to the price agreed to be paid by the institutions.

The retail offer closes on May 2 but the final price is not announced until May 12 following a pricing period in which institutions bid for shares.

Although it is almost a month before pricing is finalised, the promoters would need a sharply stronger sharemarket or a surge of support to get a price above the bottom end of the range of $1.50 to $2.

Initial indications from institutions strongly suggest that the final price will be at or around $1.50 a share (or $1.40 for retail investors). At this price, Promina would be valued at $1.6 billion.

``We would expect the dividend yield would need to be high relative to peers in the sector at the time of issue," said Wilson HTM's analyst Brett Le Mesurier.

At an issue price of $1.40, applying the 10c discount, Promina is forecast to yield 6.8 per cent based on an annualised payout ratio of 53 per cent of 2003 reported earnings.

Shareholders will in fact get only a dividend of 7.1c a share, representing the period to December 2003 for which Promina is listed.

Based on Wilson's figures, other general insurers IAG, QBE and Suncorp-Metway are trading on dividend yields of about 4.6 per cent (as at the start of this month) and the banks at 5.3 per cent. In his report, Mr Le Mesurier cites Promina's less scrutinised earnings history, the ``downside risk" to 2003 forecasts and smaller market capitalisation relative to peers (reducing the need for institutions to hold the stock) as reasons for Promina trading on a higher yield.

One fund manager said that investors would apply at least a 10 per cent discount to the market valuation, and that meant the float was likely to be priced at the bottom end of the range.

The fund manager said it was in everyone's interests to price the float cheaply (except for vendor Royal & SunAlliance ), citing the fact that management's performance share plans would be also be priced off the offer price and make it easier for them to meet performance hurdles to profit from the rights.

Managing director Mike Wilkins will be able to earn up to 60 per cent of total pay, or $510,000 in the first year, in the form of shares if he meets performance criteria related to total shareholder returns and internal rates of return.

On Friday, Promina said it had received a good response to the retail broker firm offer. About 30 brokers participated, with brokers not in the float syndicate being scaled back by as much as half of the shares they were requesting. But the acid test is the institutional pricing period of May 7 to May 9.

``We are pleased with the response so far and with the interest we have received . . . during the institutional and retail broker roadshow," Mr Wilkins said yesterday.