Shares in UK free Internet service provider Freeserve rocketed on their first day of trading in London and New York, but brokers say the honeymoon will be short lived.
Freeserve set its opening price at 150 pence in London and $23.67 in New York, valuing the free ISP at £1.51 billion pounds ($2.39 billion).
Shares traded in London peaked at 237.5 pence before settling down and closing at 205.5 pence. In the US, Freeserve shares shot up 45 per cent after trading opened.
But despite today's gains for investors, some analysts have warned that success might prove short lived.
"They will trade very well in the first weeks, but in the medium term the house view is that they should be avoided," Ian Spence, a broker for Panmure Gordon told VNU Newswire.
Broking house WestLB Panmure has issued a savage report on Freeserve, saying the stock is really worth 60 pence a share, not the inflated 150 pence, based on US stock valuations.
WestLB Panmure's report sees Freeserve as very much a case of "the emperor's new clothes" and that its business model - a hybrid of ISP and Web portal without a subscription revenue - is "now showing tell-tale wrinkles."
The broking house had very straightforward advice for potential Freeserve investors. "If you aren't in and out during stabilisation and certainly within 28 days, we would beware of fairytales," it said.
Credit Lyonnais Securities today was advising clients to "sell" shares based on a price of 210 pence. It said a comparison with US equivalents suggested a valuation nearer to one pound.
Freeserve was launched only last September and now has more than 1.3 million subscribers. Its success has seen many copycat models spring up, from banks to supermarkets. AOL Europe has also released plans for a free Internet access service.
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