The first major privatisation of a State company looks set to launch on the markets successfully. All the indications are that Telecom's share price will rise significantly when trading opens this morning, as the major financial institutions scramble to buy shares. Private investors will hope that the expected gains will last into the latter part of next week, by which time they will have received their share certificates and will be able to sell, if they so choose.
Striking the share price involved difficult judgments. If it had been set at too low a price, the Government risked being accused of selling off the company too cheaply. Conversely, too high a price and the public might be disappointed by their initial gains. The price agreed - £3.07 - was a compromise between all these conflicting considerations.
The share price is likely to rise in trading today, buoyed by demand from the big financial institutions. Such is the initial "hype" surrounding the float that some trades may be registered today at very high prices, which bear little relation to the company's short-term prospects. It will thus be some days before the share price settles into a steady trading pattern.
Most of the members of the public who have bought shares will have their first opportunity to sell when they receive their share certificates late next week. They may then be faced with a share price on the market somewhat lower than that which will prevail at the height of trading excitement today. Some, particularly those who have borrowed money to buy, will decide to sell quickly, while others will hold their shares.
In the months ahead, Telecom shares will be influenced by a whole range of factors. These include the general state of the stock market, the company's profitability and developments in the Irish and European telecommunications market. So while stockbrokers are generally optimistic about the company's prospects, investors should realise that a steady upward climb in its share price - indeed in any share price - is unlikely. After all, Telecom is being launched at a time when the sector is fashionable and market prices overall are buoyant, both factors which can change.
As the initial excitement wanes, investors will assess Telecom's prospects compared to those of other major European telecommunication groups. As Telecom is being floated at a price which, by most measures, is above the industry average, continued strong performance will be required to maintain such a rating.
The strength of the economy may justify a relatively high value for Telecom, but much will also depend on how well its management can meet the twin challenges of diversification and competition. It is now up to them to ensure that Telecom can record a level of profit growth which underpins a strong share price. The share will inevitably rise and fall in tandem with swings in the overall market, but the challenge for Telecom is to pursue a clear strategy which allows its shares to retain a premium rating.
For the moment, Telecom's new shareholders should enjoy watching the initial gains and deciding whether to sell or hold. The shares look set for a strong debut, and the company's prospects are relatively good. But in the back of their minds investors should remember the traditional warning that shares can fall as well as rise.