Royal Mail comes to market

published 10 October 2013

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.

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.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

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.

Explore More

MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.