First Active float to go ahead despite volatility

First Active has reaffirmed its intention to float on the Dublin and London markets on Tuesday, although analysts believe the shares will now be priced at the lower end of expectations - around 265p each - or possibly lower.

The continuing volatility in world stock markets is bad news for First Active's more than 200,000 members and could leave their share windfalls worth substantially less than expected. Institutional investors are believed to be prepared only to take up shares at a relatively low price.

Despite the uncertainty, members who were invited to subscribe for a maximum of £5,000 worth of new shares for each qualifying account, are understood to have taken up the offer in huge numbers. Some analysts indicated the share offer could be over-subscribed by more than three times.

If the share price is much lower than expectations members who have instructed First Active's brokers to immediately sell their free shares could be disappointed with the proceeds. Those who hold their shares - or subscribe for additional shares - will hope that markets recover in the months ahead, helping to lift the First Active price.

If the share is pitched at 265p, the lower end of the range set out by the group, then the free share allocation will be worth £1,170 for each qualifying account, compared to over £1,710 if the shares had been priced at the higher end of the range. First Active can decide to strike a price even lower than 265p, which analysts believe is possible if market conditions remain poor.

First Active is also seeking to raise funds from the major investment institutions although their appetite for the shares is said to have been less enthusiastic. In total, it is hoping to raise £104 million on Tuesday, £48 million of which has been earmarked for the institutions, which is relatively low. First Active's general manager plc project, Mr Paul O'Neill, said yesterday it was "very happy" with the outcome of that offer.

Mr O'Neill added that no decision on the share price has yet been taken and would depend on market conditions. In the current volatility he said it might be "impossible" to pitch the shares at the right level, but it would try to ensure that the shares would not fall in value when they began trading. The share price will be decided by First Active's board of directors and its advisers over the weekend. In setting the price, the company will have to take account of the sharp drop in value, particularly of financial stocks, in Dublin and London yesterday. Analysts are using the other former building society, Irish Permanent, as a benchmark to determine the First Active share price in current market conditions. Yesterday, Irish Permanent, in line with the other financial stocks, closed down 33p to 760p, down from its high of £10.34 earlier this year.

First Active will announce the share price and details of the share allocation to members who have subscribed for shares on Monday, a day before the shares are scheduled to begin trading.

Mr Frank O'Brien, investment director Irish equities at Irish Life, said he wouldn't be "shocked" if the First Active shares were issued at less than 265p on Tuesday and, given the widespread uncertainty, he warned there was no reason why they may not fall in value when they begin trading.

"The markets are responding day to day to international events. Share prices are not being driven by fundamentals. First Active might feel a bit safer pitching the price at or below the lower range rather than have a dissatisfied after-market."

Another fund manager confirmed the general lack of interest for the First Active stock among the investment community, stating these investors would only take up the shares at a certain price. "There is a lot of value in markets elsewhere at the moment. First Active and their advisers will be aware of that and will be adjusting their expectations accordingly."

The company will be anxious not to annoy members, who make up its customer base. Goodbody Stockbroker's analyst, Mr Oliver O'Shea warned that it would have to be careful not to come up with an arbitrary price, and then see it drop by 10 per cent the next day. "Based on the ratings of other financial stocks it would suggest First Active should be offered at 265p or even below this level."