Britain’s biggest privatisation since the 1980s proved a big hit with the public this week. The government is selling off just over half of the Royal Mail (RM), with a further 10% stake for the staff. Around 30% of the shares on offer are to go to retail investors. When the offer closed on Tuesday, it was heavily oversubscribed.
The shares, to be priced on Friday, are expected to sell at the top end of the 330p-335p range. That implies a valuation of around £3.3bn. Labour’s business spokesman Chuka Umunna, citing a study suggesting the business could be worth £4.5bn, warned that taxpayers were losing out because the company was being sold too cheaply.
What the commentators said
Is Umunna a Tory double agent? wondered Jonathan Guthrie in the FT. His comments will have done wonders in promoting this sell-off. As far as small investors are concerned, “there is no buy signal stronger than a prominent socialist insisting a privatisation is horribly underpriced”.
It isn’t in any case, said Questor in The Daily Telegraph. Consider that Royal Mail’s closest peer is the Belgian Postal service, bpost. It’s in the same situation, with a monopoly in its core market and facing sliding letter volumes offset by a growing, internet-fuelled parcels business. Bpost made practically the same operating profit in its latest year as RM. It is going for seven times earnings. Apply that to RM and you get a valuation of £2.7bn. On this basis it’s selling at a premium to its Belgian counterpart.
Given the huge interest in the sale, the shares are set to rise once trading starts, reckoned Midas in The Mail on Sunday, so “nimble” investors will make a quick buck by selling their holding rapidly. The longer-term outlook is harder to call. But turnover and profits look healthy, the dividend is secure, the yield relatively high, and while labour relations remain “uncertain”, chief executive Moya Greene has “worked hard… to gain employees’ confidence”. The shares are worth a look.
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