LuLu Retail IPO: Individual investors will benefit from no change to 10% allocation

Dubai: LuLu Retail’s decision to keep the IPO allocation at 10% for individual investors should be a significant boost for the stock once it lists on ADX November 14.

Sticking with 10% will ‘limit’ speculative activity once the stock goes up on ADX, say market analysts. The Abu Dhabi headquartered hypermarket operator has promised retail investors a minimum 1,000 shares once the subscriptions are tallied.

The stock sale closes today (November 5), with all indications suggesting that it would have one of the highest oversubscription numbers for a UAE IPO. LuLu is expected to announce the final offer price tomorrow, which should in all probability be Dh2.04, the higher of the range on offer.

On Monday (November 4), LuLu had increased the IPo size, from 25% to 30%, but all of it has been earmarked for institutional investors. (Typically, such allocations to institutional investors come with a 180-day lock-in period, during which they are not allowed to trade.)

What will LuLu Retail investors do on Day 1?
This leaves the floor open for retail investors when the stock starts trading on November 14.A first-day spike is more or less a done deal for the stock, with all of the attention being how high can it go that day.
“There will be investors, including first-time ones, whose dominant interest would be on how much LuLu goes up on the first day of trade,” said an analyst. “Their intent will be to book a profit if the stock hits a certain level – say, 20-40% higher from the (likely) Dh2.04 listing price.”

But for a vast number of LuLu investors, their intent is to hold or buy more stock in the secondary market. This is where keeping the 10% retail allocation will be a big help for them.“This way, there is a better chance that LuLu Retail investors would be looking to accumulate more from November 14 onwards,” said another analyst.

“Keeping the retail tranche at 10% could actually be a strategic step in limiting speculative activity. Of course, it all depends on the price at which it opens.

“But it may end up being regarded as a shrewd move on the part of the LuLu Retail management and its bankers.”Eventually, a lot will also depend on how first-time stock market investors drawn by the LuLu name decide to do. Will they be drawn to how their stock holdings gain on the first day (or first few ways) and cash out? Or is their intent more likely to be ‘hold’?

November 14 will provide a few answers…