Shortage of stock drives up Telecom share price

Heavy demand for Telecom Eireann shares and a sluggish supply of stock from small shareholders drove the shares ahead to their best level since the first day's trading two weeks ago. By the close in Dublin, Telecom had risen 16 cents to €4.91 (£3.87), a 26 per cent premium on the €3.90 (£3.07) flotation price.

Telecom shares also closed on €4.91 in London in heavy trading involving almost 19 million shares. No turnover figures for yesterday's trading in Dublin are available until today, but dealers said it was unlikely the Dublin volumes were as large as London.

Telecom shares were also in demand in New York and rose as high as $20.87 in early trading. This is the equivalent of €5.02 (£3.95) based on yesterday's exchange rate of $1.04 to the euro. Dealers in Dublin said, however, that they would be surprised if Telecom shares broke through €5.00 (£3.94) in Dublin or London despite the continued institutional appetite for stock.

Institutions have been surprised by the comparatively small level of selling by Telecom's 574,000 small shareholders and, as a result, some London market-makers who had depended on a substantial supply of stock from the retail side to build up their own shareholding have been caught short.

Some dealers said that a greater level of retail selling may be generated now that Telecom shares have risen above €4.90 and are supported above that level.

"The shares are now on a 26 per cent premium and this means that even taking into account broking commissions, punters can take a quick profit of over 25 per cent from their investment in Telecom," said one dealer.

Demand for Telecom should intensify from today when the shares are included in the ISEQ index where they will make up close on 15 per cent of the index. The shares are also due to be included in the MSCI Index, so will be in demand from index funds who base their investment strategy on the composition of that index.

Most brokers are still only taking sell orders on a "best price" basis rather than a specified minimum selling price.

A number of Telecom shareholders have complained to The Irish Times about being unable to place sell orders at a minimum price limit, even when they have been willing to forgo the low-cost commissions being offered by brokers and were willing to sell at the usual commission.