Standard Life share rises 6.5% on debut

LONDON: Shares in Standard Life climbed as much as 6.5% on their market debut on Monday, as the insurer ended eight decades of mutual ownership with Britain’s biggest initial public offering since ’00.

The fifth-biggest UK-listed insurer was trading 241-1/2 pence a share, up 5% on the 230p IPO price set on Friday, which was in the middle of a reduced price range and which valued the group at £4.7bn ($8.6bn).

“It was priced to go, ultimately. They knew it was going to happen, they had to get it away and it was priced at the right levels,” fund manager Gary Jones at Aberdeen Asset Management said. “From where (the shares) are now, they’ll probably stay around these levels or stronger.”

Standard Life shocked members and rivals in ’04 when it announced plans to list only four years after spending £10m in a campaign to stay mutual, saying tough new capital requirements and a declining market for its with-profits products forced it to turn to the stock market for cash.

It has since reported a profit for ’05 as it slashed jobs and responded to falling demand for once-key products by cutting commissions and focusing on more lucrative business. Trading volume reached 94m shares by mid morning on Monday.

Standard Life had set its expected range last month at 210p to 270p. That valued the insurer at 5.3bn, but was 10% below an initial range set in April of 240-290p as the sector suffered in volatile market conditions. At Monday’s levels, Standard Life is roughly in line with its embedded value, estimated by analysts at around 240p, but still at a discount to the sector.

A rise in European stock markets in the last few weeks boosted institutional and retail appetite for the shares. Standard Life, which raised £1.1bn with the offer, said on Friday that its institutional offer was three times oversubscribed, with the preferential offer for members and customers scaled back in the face of strong demand.

“It looks like 75% of the stock is going to be owned by their customers. There’s been a big takeup, which is seen as a degree of confidence,” analyst Mark Durling at Brewin Dolphin said. “The institutions have been scaled back as well, so it does appear there will be demand for the stock over the next two to three weeks.”

Among its closest peers, Friends Provident trades around 1.2 to 1.4 times EV while Legal & General trades at around 1.1 to 1.15 times EV. “Standard Life still has to prove itself over the next six to nine months, its earnings record is just starting to improve,” Mr Durling said.

Monday’s market debut is the biggest UK initial public offering since Dimension Data in ’00 and marks the taking public of Britain’s last major customer-owned insurer. Merrill Lynch and UBS were joint sponsors and joint bookrunners for the deal, while Citigroup and JP Morgan Cazenove were co-lead managers.