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Monday, August 2, 1999 Published at 17:00 GMT 18:00 UK

Business: The Company File

Freeserve shares stay firm

Freeserve was valued at more than £2bn ($3.2bn)

Freeserve shares have performed strongly on their first full day of trading, rising to 240p, a premium of 90p or more than 50% on their 150p offer price.

Some analysts had expected the shares to fall after the huge increase last week when the company was launched on the stock market.

Trading in the shares went unconditional this Monday, one week later, as individuals received their share allocations.

In the previous week, while trading had began, many people did not know how many shares they had received from the initial listing of the company on the stock market. The listing had been 30 times oversubscsribed

Shares had fluctuated during that first week before ending at around 237p.

The UK Internet access provider had declined to 195.5p on Tuesday, reversing some of the huge gains on Monday's first day of trading. In New York, there had been a 62.5 cent slide to $31.5.

Traders said those falls had been down to investors cashing in on the early gains, and that there would have been a bigger drop in price had Credit Suisse First Boston - one of the leading managers of Freeserve's share offering - not been buying heavily.

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On Monday, shares in Freeserve had ended at 205.5p - below the day's peak of 225p, but at a huge 37% premium on the offer price of 150p.

This valued Freeserve at £2.05bn.

Trading began simultaneously on the London Stock Exchange - and the Nasdaq in New York, which is the favoured market place of many technology companies. Freeserve shares had been oversubscribed more than 30 times.

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Before the flotation, some banks had advised their clients to sell Freeserve shares at a price of 210p - and analysts have been warning that the stock may be less attractive once the intitial "feeding frenzy" has passed.

Investment bank WestLB Panmure said that it put a "fair value" price of only 60p a share on Freeserve. But so far the price appears to be holding up after the initial profit-taking.

New rivals

Business Correspondent Rory Cellan-Jones: Flotation is a crucial step in development of the internet in Britain
Founded by electrical retailer Dixons in September, Freeserve swiftly became the UK's top online firm by scrapping the subscription fee for Internet connection.

It relies on a share of call charges, plus e-commerce and advertising, generating revenues of £2.73m to May and making a net loss of £1m.

Although still the UK market leader with 1.3 million users, Freeserve now faces rivalry from 70 to 100 "free" competitors, including America Online, which has 20-million subscribers worldwide.

The past fortnight has seen a range of initiatives from rival Internet service providers (ISPs) such as the offer of a free Tiny PC for new customers.

These developments have led some analysts to wonder how sustainable the share price jump might be in a sector that has seen rapid rises in valuations in the US in recent years.

'Fear and greed'

But Chris Bell, fund manager of Framlington Group's NetNet fund, which invests in internet stocks, said longer-term fears would not weaken demand among fund managers for the stock in its early days.

"There is a fear and greed mentality in this issue as the free float is so small and it is split between London and New York," he said.

The valuation of Internet stocks has fluctuated wildly as markets have tried to guess at future potential profits, or put valuations on emerging companies that are often big loss-makers.

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