EIRCOM shares have continued their headlong downward plunge and for the first time have fallen below the €3.90 (£3.07) price at which over 570,000 private investors bought into the company in the July flotation. At the close of trading in Dublin, Eircom was down 8 cents on €3.86 (£3.04).
The fall to below the flotation price is a further blow to the army of small investors who invested in Eircom shares, expecting that the shares would only move in one direction - upwards. But after hitting a high of €5.00 (£3.94) shortly after the flotation, Eircom shares have steadily weakened, with that decline accelerating over the past week culminating in yesterday's move to below the flotation price.
Since that July 22nd high of €5.00, Eircom shares have fallen 23 per cent. The Irish market has been taken aback by the scale of the setback - most of which is due to selling by foreign investors. These investors have taken the view that the long-term prospects for the Irish economy are negative and that any economic downturn will particularly hit companies like Eircom whose earnings are derived almost totally from Ireland. Irish economists might question this view, but for many overseas investors the negative views of their economists are holding sway.
Eircom has also been affected by a general downturn in the European telecom sector, although Eircom's weakness in the past few weeks has been far more pronounced than its peer group in Europe, which includes the likes of its own 35 per cent shareholder KPN, British Telecom, Deutsche Telekom, France Telecom, Telecom Italia and Telefonica.
"It seems to have really gone rock bottom," one dealer said. "It's just weak and it's going to remain weak, although there may be some support at this level."
While Merrill Lynch - one of the advisers to the Government on the flotation - has suggested that the shares could recover to €4.90 (£3.86) over the next 12 months, Irish brokers are more cautions and believe that the share, while undervalued at current levels, will do well to get back to €4.50 (£3,54).
