Royal Mail shares jump sharply on market debut

 

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Royal Mail shares rose 38% to 455p in their first day of conditional dealings on the London Stock Exchange.

The hugely oversubscribed sale was priced at 330p a share, valuing the 500-year-old firm at £3.3bn. At one point, the price hit 459.75p.

Private investors received 227 shares each. In all, more than 225 million shares were traded on Friday.

Business Secretary Vince Cable told Channel Four News he could have charged a higher price for Royal Mail shares.

Asked if he could have raised the sale price when he saw the level of demand for shares, Mr Cable said: "I could have done and I could have joined the speculators and spivs.

"I'm not interested in doing that," he said.

The shares are listed officially next Tuesday, but City institutions began conditional dealings on Friday.

Some 10 million shares were traded in the first 30 seconds when the market opened. Stockbroker Hargreaves Lansdown reported that its website was having "intermittent problems" due to the "unprecedented interest" in Royal Mail.

Tom McPhail, the firm's head of pensions research, said it was "extremely sorry for the delays", but was making "significant progress in clearing the backlog" and hoped to have all systems running normally again soon.

"We have experienced demand this morning which has gone off the scale," he said.

"We now have six times the normal number of staff working on our dealing lines. We know we are not the only broker affected by such problems this morning."

Start Quote

Something does seem to have gone a bit cock-eyed with the sale”

End Quote

The price rise is likely to fuel debate over whether the sale of Royal Mail has been undervalued. Mr Cable has insisted that the taxpayer has not been short-changed by the privatisation.

But the general secretary of the Communication Workers Union, Billy Hayes, described the sell-off as "a tragedy" and predicted that it would make "not one scintilla of difference" to employees' intention to vote for strike action next Wednesday.

Mr Hayes told BBC Radio 4's Today programme: "This is a sham, really. The company has been undervalued.

"It's basically David Cameron rewarding his mates in the City. Vince Cable, one of the cleverest men in British politics, has made one of the stupidest decisions he is ever likely to make as a politician."

'Froth and speculation'

Mr Cable told the Today programme that the bulk of the shares had gone to "long-term stable investors" in the UK.

He said any volatility in the Royal Mail share price over the next week or so was of little consequence. "What matters is where the price eventually settles in three or six months' time".

Mr Cable said: "You get an enormous amount of froth and speculation in the aftermath of a big IPO [initial public offering] of this kind.

"The bulk of the shares have gone to long-term institutional investors, stable investors, some overseas investors, but mainly British pension funds and insurance companies who are there for the long term.

"The objective of the exercise, which fits in with what we want for the Royal Mail, is to make sure it has stable, long-term investors."

Voting in the strike ballot will close on 16 October. Under the current rules on industrial action, the earliest possible date for a strike is 23 October.

In the flotation prospectus, Royal Mail warned that labour unrest posed a potential risk for the share price.

Mr Cable said a strike was not in the interests of Royal Mail.

'Dazzling debut'

City analysts said the price rise was driven by big institutional investors' demand for the stock. Matt Basi, head of UK sales trading at CMC Markets, said investment funds were "queuing up to make big purchases".

Joe Rundle, head of trading at ETX Capital, called the surge in Royal Mail shares a "dazzling stock market debut".

But he said factors such as the threat of industrial action, a lack of adequate capital and unclear growth strategy could weigh down the stock price in the future.

Graph showing Royal Mail share price
 

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  • rate this
    +1

    Comment number 751.

    We'll all soon have to trek several miles to the nearest mail pick-up/drop-off point.....can't see door-to-door delivery continuing much longer.

  • rate this
    -5

    Comment number 750.

    Im a 1st class mail (sorry male)

  • rate this
    +4

    Comment number 749.

    Who would have believed it?, another Tory privatization where the Public asset is undervalued and the private investor makes a killing.
    Watch this space our hospitals will be next.
    The Tories are responsible for selling all of the nations assets. If labour where to grow a set and state all would have been re-nationalized not one of the sell offs would have worked and the policy would have died

  • rate this
    +5

    Comment number 748.

    735.ConnorMacLeod
    Wrong.
    Royal Mail has been making an operating profit for a while now.

    Add to that the massive land/property assets it held in prime locations for redevelopment and it was a very attractive deal for the institutions who knew the land/property assets had not been included in the valuation and that the pension deficit had been excluded.

    Now, go away and rethink your post.

  • rate this
    +2

    Comment number 747.

    I've been funding this business since I started paying taxes - more than 40 years. All of you have made a quick profit please give me my money back.

  • rate this
    -2

    Comment number 746.

    #724: "Rolls Royce still design their aero engines mainly here & UK remains a centre of technical excellence. Aerospace is an international business and RR responded to the market."

    You don't actually expect the anti-business proponents of big government to understand the realities of international commerce, do you?

  • rate this
    +3

    Comment number 745.

    now that everyone was given the chance to buy shares in the RM does it mean that like the rail companies prices are going to rise and service will go to pot?

  • rate this
    +7

    Comment number 744.

    Is this what the Tories mean when the say the something for nothing brigade

    This is clearly a government hand out

    I suspect the beneficiaries of this sell off will have the curtains close in the morning

    Counting all that lovely money given to them for doing absolutely nothing while we were all out working to pay for it

  • rate this
    -8

    Comment number 743.

    Could any event happen in this country without a national moan in.In this silly island where every body has to get a prize.Nothing is done without a knashing of teeth and whailing whoe is me.

  • rate this
    0

    Comment number 742.

    @701. PS. China is the world's second largest aerospace market and have told Boeing, Airbus & the engine manufacturers they expect to see them establish production in China. Whatever your politics it's difficult to ignore major customers whether they be private or state organisations. By the by. Check out how RM is now dependent on Amazon et al.

  • rate this
    +2

    Comment number 741.

    only the foreign external investor is not liable for the gigantic pension debt pool the tax payers of this country are, in 2 years the stock will be foreign owned and foreign investor run, all possible future profits leaving the country there is no need for the pretense of royal now - strip it from them, now that they will be private foreign investor owned, post with another company.

  • rate this
    -1

    Comment number 740.

    I wonder who's next for a bit of competition & exposure to the real world?
    The BBC, maybe....

  • rate this
    +5

    Comment number 739.

    Well at least when the workers lose their jobs they can work for free and deliver their own benefit letters.

  • rate this
    +1

    Comment number 738.

    718.therealist

    Yes of course, only the economically illiterate could defend a company that pays no corporation tax here in the UK. Because "it's British", who cares if it pays no tax! When RM is asset stripped and 1,000's are made redundant and any profit benefits FOREIGN pension pots doubt the economically illiterate right will be salivating over that too.

  • rate this
    +2

    Comment number 737.

    More proof that we have learned nothing from earlier mistakes.

    Further proof too that those who claim their parents trashed their future and their childrens future by 'grab all whlie its going' actions are no better and therefore deserve no particular sympathy.

    I do hope they plan to take away the right to Royal name and coat of arms from this new entity

  • Comment number 736.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    -6

    Comment number 735.

    714.Duckerama
    Q Why would anyone want to sell off the profitable side of a business on the cheap & keep the loss-making side.


    Answer : the business was already making a LOSS - but with cash investment and under private ownership it has the potential to be turned around.
    The govt had to keep the pension fund - otherwise Royal Mail would be unsellable for any sensible amount.

  • rate this
    +30

    Comment number 734.

    Here we go now its all about the share holders and not the customer.Watch how long before prices go up and service gets worse why is everything about profit without mail,energy,transport links the country wouldnt function.I think decisions like selling off RM shouldnt have been theres RM belonged to the country not the Tories there just carrying on what Maggie started.

  • rate this
    +3

    Comment number 733.

    711ConnorMacLeod
    687Duckerama
    Yes, but so was the profitable part, now we only have the liability. Why wasn't the liability included in the sale?
    -
    Hmmm, let me think...
    ...maybe because no one would have bought it
    -
    Can't we get you on Mastermind - Specialised subject - Stating the bleeding obvious
    -
    Sometimes it's better to cut your losses..
    -
    But we still have the losses but not the profit!

  • rate this
    +4

    Comment number 732.

    @124.Extremely Smart

    Your user name is the only 'smart' thing about you - and writing FACT in caps doesn't make what you have written any more true when in reality it's total drivel.
    As you think privatising institutions makes them work better perhaps you'd like to explain how privatising the energy companies and splitting up British Rail and selling the bits off has improved those institutions.

 

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