ConSors Aims to Connect With German Investors in IPO

While the online broker's IPO is expected to be successful, it faces the same threats of volatility as the U.S. market does.
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The Germans have finally discovered the stock market. They've also discovered the Internet is a pretty handy way to get to it. And so perhaps unsurprisingly, investors from the North Sea to the Bavarian Alps are going nuts for shares of the country's leading online broker, which will go public Monday.

The Nuremberg-based

ConSors Discount Broker

is shopping its stock at around 28 to 33 euros per share. But investors surveyed by

TheStreet.com

who are aware of the company's potential amid the burgeoning Internet craze have pegged the gray-market price at closer to 80 euros.

ConSors is selling 11 million shares on Germany's

Neuer Markt

. The official price for its initial public offering will be set Friday. The Neuer Markt is the local equivalent of the

Nasdaq

, serving as a market for innovative and potentially high-growth companies.

Armed with the double-barreled advantage of a spreading German interest in equity investments and booming Internet growth, ConSors appears to have very little to worry about on the business side. But just as in the U.S., the technology sector's volatility presents potential pitfalls for the shares. Because a large chunk of the stock is earmarked for ConSors' online clients, shares could eventually be sold just as quickly as people are now signing up to buy them.

"A lot these stocks on the Neuer Markt really do blitz it on the first day or first week, but they rarely continue in a vertical direction for too long," says Daniel Cowan, an analyst for

Credit Lyonnais

in London.

With roughly 4 million Internet users, Germany is Europe's largest market for services such as online investing. Europe remains hamstrung by low personal-computer penetration and regressive telephone-access charges, but in Germany, as telephone charges continue to come down and flat monthly fees for unlimited Internet access become more widespread, firms like ConSors stand to gain legions of new customers.

And regardless of how hostile cyberspace conditions are on this side of the Atlantic, ConSors has seen its business explode since it began in 1994 as an investment-by-fax service. By the end of last year, ConSors' online trading accounts had more than doubled from 1997-end levels to 86,000, and the number of transactions had ballooned nearly fivefold to 2.8 million. The surging activity caused the company's 1998 profit to nearly triple from a year earlier to 13.8 million marks.

The company says it currently has more than 100,000 customers, and orders in the first quarter of 1999 totaled 1.4 million. By comparison, the leading U.S. online broker,

Charles Schwab

(SCH)

, does an average 100,000 transactions a day via the Internet and has nearly 2.5 million online accounts.

Most experts agree that online investing in Germany will continue its strong growth alongside the similarly flourishing "equity culture." According to a study by the Massachusetts-based

Forrester Research

cited by ConSors, the number of online brokerage accounts should double by 2002. Over the midterm, Germany is seen as having the market potential for approximately 3 million accounts.

With Germany being the rather regulated place that it is, ConSors should also benefit from considerable barriers to entry in the local market, including heavy-handed regulators and cultural quirks, and appears to be miles ahead of the competition for the time being. ConSors' closest competition comes from

Commerzbank's Comdirect Bank

unit.

Half of the shares to be sold will come from a capital increase, which is to be used to expand ConSors' activities in Europe as well as strengthen its information-technology and marketing branches. The sale is being managed by

Goldman Sachs

,

Baden-Wuerttembergische Bank

,

BancBoston Robertson Stephens

and

SchmidtBank

.

For the moment, with Internet growth pulling the company forward and equity-hungry German investors pushing from behind, the ascent of ConSors' shares Monday is assured to be dizzying one. The question remains, however, whether the company's clients will stand by it for the long run.