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Share and share alike

Created:
18 January 2008
Updated:
20 January 2008
Written by:
Jonathan Eley

My dad always used to tell me that if something's been given away for free, it's usually not worth having. So I was interested to get a press release yesterday saying that Share, the parent company of The Share Centre, is setting aside shares in its forthcoming flotation to give to its account holders.

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The terms seem beguilingly simple (they're all on the company's website). You open a full subscription Isa before the end of the next tax year (April 2009), and you'll get 200 free shares - provided there are any left. The company has set aside 4m shares, and it's first-come, first-served. Four million divided by 200 is 20,000, so if you're applicant number 20,001, you've missed out. The offer is being made to existing Isa customers, too.

But still, 4m shares should be enough to go around for a while. So assuming you get in quickly, are there any other catches?

One is that you don't get all your free shares straight away. Invest your £7,200 (this is what they mean by a full subscription Isa) before April this year, and you'll get 100 shares on admission to Aim - currently scheduled for May - and another 100 in May 2009. If you invest during the 2008/09 tax year, you also get your shares in two tranches, but the timing depends on how early in the year you make your Isa investment.

Aim shares aren't eligible for inclusion in an Isa, so you'll have to hold them in a conventional dealing account. Which The Share Centre will kindly open for you.

Clearly, Share is hoping that during the period you hold an Isa and a share-dealing account with it, you'll be tempted to take up other products or add more shares to your dealing account. Fair enough. But how does Share Centre square up as a dealing service?

It's pretty good if you're a long-term investor putting fairly small amounts into fairly large-cap stocks. It processes deals in batches to keep costs down, so you won't always get the best price, but outside the world of small-caps, that's unlikely to matter too much. Commission is 1 per cent of the transaction with a £2.50 minimum (on purchases; if you're selling, the minimum is £7.50), and there's a £2.50 per quarter administration charge (this is waived if the only shares you hold are Share ones). Or you can pay £20 per quarter and have a £7.50 flat rate.

Valuing Share itself is gloriously easy - because it's already quoted on its own stock exchange. Share runs www.sharemark.co.uk, which shows its market value as £47m. It says that the 4m shares it is holding back for account holders will represent no more than 2.4 per cent of its issued share capital when it floats on Aim. That suggests there will be 167m shares in issue - so at the current market value, each one will be worth 28p. Your 200 free shares are notionally worth £56, you'll have to wait a year to get all of them (during which you'll pay £10 in account administration charges), and it'll cost you £7.50 to sell them.

Of course, the shares might be worth more than 28p at flotation, or they might subsequently rise sharply. But conversely, they might be worth less, or the float might be cancelled (it would hardly be the first time that's happened in recent months), or the shares might fall.

So effectively, you're locking up £7,200 for a year in order to get your hands on £38.50 (assuming the shares remain at 28p and dealing charges don't change). I wouldn't make a decision on where to put seven grand on the basis of £38. It's a clever marketing idea, but choose your stock broker or investment manager based on charges and service, not hand-outs.

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