Royal Mail shares soar to new highs - should you bank profits?

As ‘unconditional trading’ starts in Royal Mail shares, the price has soared to new highs. Ed Bowsher looks at whether you should sell now, or hold on to them.

More private investors can sell their Royal Mail (LSE:RMG) shares today, but the share price is still on the up.

The shares went as high as 490p earlier this morning, and at the time of writing they're trading at 480p, up 40% from the offer price.

So if you successfully applied for shares, your holding is now worth £1,090.

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That means you're sitting on a £340 profit assuming you haven't sold your shares already.

Who can sell

However, today is the start of uncondtional trading' which means that most investors can now sell if they wish.

So if you bought via the online Royal Mail Nominee Service, you should be able to sell today. That's as long as you've received an email with your ID and passcode. You can sell your shares online or over the phone. Call 0845 268 0282 if you want to go down the phone route.

However, if you asked to receive your shareholder ID via post, you may not be able to sell until next week. You're in the same boat if you asked for an old-fashioned share certificate.

Should you sell?

I said yesterday that I thought the current valuation looked rather rich, but I admit that bulls do have some decent arguments - especially the point that FTSE 100 tracker funds will soon be obliged to buy Royal Mail shares.

At 480p, Royal Mail is valued at £4.8bn. As long as the market cap stays above £3.8bn, Royal Mail will probably join the FTSE later this year and the trackers will have to start buying.

But I still worry that the letters business could decline even more quickly than City analysts expect, while growth at the parcels division could disappoint. Competition in the parcels sector looks set to increase and Royal Mail will have to invest heavily if it wants to keep up with well-funded overseas rivals.

Then there's Royal Mail's long history of poor industrial relations. Another strike is expected later this month. Every time Royal Mail goes on strike, more customers will defect to competitors.

And don't forget: if the US debt ceiling crisis isn't resolved in the next couple of days, stock markets could fall around the world. If that happens, Royal Mail will inevitably get caught up in the carnage.

This is a risky share in my view, and, heck, there's no shame in banking a 40% profit in less than a week.

Ed Bowsher

Ed has been a private investor since the mid-90s and has worked as a financial journalist since 2000. He's been employed by several investment websites including Citywire, breakingviews and The Motley Fool, where he was UK editor.

 

Ed mainly invests in technology shares, pharmaceuticals and smaller companies. He's also a big fan of investment trusts.

 

Away from work, Ed is a keen theatre goer and loves all things Canadian.

 

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