Investment Insider: What to do with your Royal Mail shares?
Investors must decide whether to keep them or take a quick profit
Sunday 20 October 2013
From a financial perspective, the flotation of Royal Mail Group appears to have been a success for investors but, perhaps, less favourable for the Government.
The aim of any flotation is to raise as much money as possible for the owners of the business – in the case of Royal Mail it would be taxpayers. Consequently, owners will want to maximise the rewards from the share sale.
The fact the shares have not only jumped by more than a third but also that the float was heavily oversubscribed suggests prospective investors might have been prepared to pay more than 330p a share for a stake in the company.
However, this was not a straightforward flotation. It was designed to not only raise money for the Government’s coffers but also to position the postal delivery company in the private sector.
Interestingly, the UK Government could be seen as laggards in privatising the UK postal service. For instance, Germany’s Deutsche Post was privatised in 2000 and Singapore Post was listed on the Singapore Exchange some 10 years ago. Both have performed well since privatisation and continue to reward shareholders with decent returns.
The question of what to do with your allocation of shares now is an interesting one. Some suggest the surge in the price is a good opportunity to take profit. After all, while a prospective 6 per cent dividend yield might seem attractive, cashing in your shares today would be equivalent to bagging several years’ worth of dividends upfront. Consequently, if your intention to participate in the share sale was to make a swift buck, then it is hard to argue against taking a quick profit now.
However, it is important to appreciate that Royal Mail Group today is materially different to the one we may remember from the past. For example, a significant portion of the regulations that made the business deeply unattractive have now been swept away. Ofcom, for instance, has decided to remove regulatory control from the price of first-class post and from most business services too. Mind you, second-class stamps will still be capped. The Government has also taken steps to bail out the Royal Mail Pension Fund by taking on both its assets and deficits.
Without that millstone around its neck, Royal Mail should be in a better position to fight for market share in a highly competitive industry, which at first sight appears to be in decline. Truth is, the internet has made sending letters almost redundant for many. However, more people are shopping online, which means demand for parcel delivery is on the rise. Let us also not forget that Royal Mail has an unrivalled distribution network and infrastructure. If it can leverage its advantage in a meaningful way there is every chance that the company has a bright future.
Deutsche Post and Singapore Post have provided Royal Mail Group with a blueprint for what is possible. Based on its most recent profit of £566m, the £4.6bn company is valued at around eight times earnings.
The question is, can it take the next important step in its transformation or will persistent industrial action prevent the company from being a world-beating logistics company?
Knowing the answer to that should help you decide what to do with your Royal Mail shares.
David Kuo is director of fool.co.uk
Compare with the Independent: See how much you could save by switching credit cards. Compare now
- 1 International Women's Day 2014: The shocking statistics that show why it is still so important
- 2 Orgasm machine to deliver climax at the push of a button
- 3 Dear 'The Sun', breast cancer isn't sexy
- 4 Teacher shows sex tape featuring herself to pupils during class by mistake
- 5 Singapore sting: Sky-high prices are pushing locals to the edge of affordability
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
If you're horrified by a flame-roasted dog, you should be shocked at a hog roast
Poor 'live like animals' says Boris's privately educated sister after going on 'poverty safari'
Exclusive: Impact of immigrants on British workers ‘negligible’
Vince Cable: Teachers 'know absolutely nothing' about the world of work
Ukraine crisis: Russia pledges to 'retaliate against sanctions' as Ukrainian president says Crimea vote will not be recognised
iJobs Money & Business
£12000 per annum: Inspiring Interns: The company works with Tier 1 FTSE 100 Ba...
£32000 - £36000 per annum + generous benefits: Pro-Recruitment Group: * TAX * ...
£37000 - £40000 per annum + £20000 benefits package: Pro-Recruitment Group: **...
£30000 - £35000 per annum + generous benefits: Pro-Recruitment Group: Mixed Ta...
Day In a Page
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew