Standard Life shares - what happens now?

Members of Standard Life receive their free shares as the formerly mutual insurer floats on the Stock Exchange. Anyone who has not previously instructed Standard Life to sell their holding for them straight away, and send them the cash instead, now has to decide what to do with the shares.

At the float price of 230p, the average windfall payout for the 2.4 million members of the with-profits fund who were entitled to free shares will be about £1,475. This comprises 185 shares, worth £425.50, handed out to every qualifying member, plus an additional allocation dependent on the value of their policy and the length of time the policy has been held for.

Additionally 492 million shares, worth about £1.13bn at the issue price, were allocated to retail investors, with applications up to £2,000 being honoured in full, but over that being scaled back, because the issue was oversubscribed.

On the first day of trading, Standard Life shares ended the day at a reasonable premium, closing at 242.5p. Shareholders now have a number of choices open to them. If they are having second thoughts about keeping the shares they can sell them in the market, or they can hang on to see what happens. But analysts remain divided over the best course of action.

HOLD

Those hanging on to their shares until July 10, 2007 will qualify for another free distribution of bonus shares amounting to 5% of their holding, which might influence a decision on whether to sell or not.

Andy Merricks, head of investments at Brighton-based IFA Skerritt Consultants, said that, for those happy with straight equity investment, the best policy was to sit tight. "Unless you need the money urgently, I would suggest the best policy is to hold for a few years, or at least until the free shares are issued a year after the float," he said.

"I don't think most people would consider investing in this company given a choice, so there needs to be an exit strategy. Investors really need to be in shares of choice rather than shares of convenience that these undeniably are.

"I think these shares should be seen as a short-term hold with the free shares being the key benefit," he said. "But I think shareholders need to keep their eyes on what happens after flotation, and be prepared to take evasive action." Merricks added that investors should remember that Friends Provident lost 22% of its value after demutualisation, Standard Life shareholders have no guarantees that holding is the best way to go.

Richard Hunter, of investment broker Hargreaves Lansdown, suggested that the demand for shares that will come about from a FTSE-100 listing could give many people an incentive to hold on to their free shares.

"In terms of the shares themselves, the mere fact that the company is likely to become a FTSE 100 constituent will result in a number of institutions needing to buy the shares, especially for index-trackers, to maintain their exposure to the top companies.

"This buying could of course exert upward pressure on the share price." He added that Standard Life could itself become a takeover target, further boosting the share price.

Justin Urquhart Stewart, of Seven Investment Management, was even more upbeat, suggesting that the shares could even soar to above £3.

SELL

Justine Fearns, research manager at financial advisers AWD Chase de Vere, said more cautious investors would look to sell up and invest elsewhere. She said, " If you normally wouldn't hold direct shares, why would you do so now? If you are a low-risk investor, holding shares at a period when markets are as volatile as they are now is not exactly ideal."

Justin Modray, of IFA BestInvest, agrees, "We do not usually offer advice on individual shares, but prefer to recommend fund-based investing to our clients. This enables them to gain exposure to a wide range of companies. The risk of having significant holdings of any individual share is too just high for most. It is wrong for investors to be too exposed to one company."

So, how do you decide what to do? Philippa Gee of Wolverhampton-based IFA Torquil Clark, says, "The answer is really all about your individual circumstances and outlook."

DON'T BUY MORE

In the run-up to the float, stockbroker Charles Stanley was recommending clients who were Standard Life policyholders to buy shares through the preferential offer, but warned non-policyholders not to buy, or for policyholders to buy more after the float:, "We would not recommend buying through the retail offer," the broker said.

DON'T TRANSFER

If you have decided to hang on to your shares either the free allocation or shares bought in the preferential offer make sure you keep them in your own name. Don't transfer them into an Individual Savings Account, (ISA) or a Self-Invested Personal Pension (SIPP), or transfer them to anyone else even a family member, such as a spouse or put them into joint names before 10 July 2007. If you do, you will not be eligible to receive any bonus shares in respect of the shares you have transferred; and there may also be tax implications. However, if you simply want to transfer your holding to a broker, a bank share account or nominee account, your eligibility for bonus shares will not be affected.

If you are considering transferring your shares, make sure you take advice from a qualified independent financial adviser before doing so.

CLAIM

Nearly 450,000 policyholders, or a fifth of the Standard Life's membership, have failed to claim their free shares. They have now missed their chance to take up the preferential share offer for extra shares, but it is not too late for them to claim their free entitlement. The shares will be held in an Unclaimed Assets Trust for up to 10 years, unless they claim it, after which the shares may be sold and the money given to charity.

If you think you may be entitled to windfall shares but have not claimed them, ring Standard Life on 0845 275 3000 or email unclaimed-shares@standardlife.com.

Annie Shaw
27 July 2006 © Moneyextra.com

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