Stockbrokers warn that private investors should not necessarily expect to receive more than €4.60 (£3.62) for their Telecom Eireann shares when official dealings in the shares begin next Wednesday.
After Wednesday, the 574,000 shareholders will receive their share certificates or details of their nominee accounts and will have their first opportunity to sell.
While brokers in Dublin and London said Telecom shares were well-supported at their closing level of €4.62 (£3.64), they warned that any flood of private investor selling next week would inevitably force down the Telecom price.
"Yesterday's big prices were a reflection of the shortage of stock, but, if a hundred million shares are suddenly offered by punters next week, there is no question but that the price will be pushed down. If the selling by punters is lower, then the price can be supported at today's closing level. It's all a matter of supply."
And stockbrokers expressed concern that if the private investors had to settle for a substantially lower price than yesterday's prices involving institutional investors, they might feel slightly disillusioned towards other public offerings of shares.
"If people see institutions getting in early and making a killing of 20 to 25 per cent and they have to settle for a 15 per cent gain, they have every reason to feel a bit short-changed," said one broker who specialises in private clients.
The expectation is that many of those private investors who borrowed to buy their Telecom shares will sell in the few days immediately after official dealings begin next Wednesday, but that investors who drew on their savings for their shares are more likely to hold on to their shares for a longer period - possibly for the year required to qualify for the one-for-25 bonus share issue.
"We are getting feedback that people who took money out of savings for their shares may stay on," said one broker. "Remember, there is the likely capital gain, a dividend yield of around 2 per cent and a bonus issue equivalent to 4 per cent. That's a lot more than they're ever going to get from a bank deposit," he added.
Stockbrokers were generally agreed that Telecom shares had reached inflated levels when they hit €5.30 (£4.17) in early trading yesterday. At this level, the shares were almost 36 per cent above the offer price and put Telecom on a massive premium to the European telecoms sector.
At its high point yesterday, Telecom was briefly the biggest stock on the Irish market, but fell back behind AIB to the number two position after the shares subsequently weakened. Even so, Telecom has displaced Bank of Ireland from the number two position in the market.
Even at the closing price of €4.62 (£3.64), the shares are at a near 50 per cent premium to the European average enterprise value/EBITDA - a traditional measure of the value of companies in the same sector. Brokers generally believe that the upside for the shares from last night's closing level is limited.
Indeed broker Dolmen Butler Briscoe believes Telecom shares are more than fully valued at the closing level and believe that, at best, the shares are worth between €3.60 and €4.20 (£2.84 to £3.31) and that the shares should be sold at the early grey market levels of €4.90.
"Simply, the grey market price of €4.90 discounts the maximum possible growth scenario and allows little in the way of upside for the next five years. The conclusion is that progress towards €5 per share in the next two weeks offers an excellent selling opportunity," state Dolmen.
Private investors will now be closely monitoring the price over the next week to see how it settles. It is only when full trading starts towards the end of next week and it becomes clear how many of them plan to sell that the price is likely to settle down to a steady trading level which will provide a benchmark for the months ahead.
