Investment Insider: What to do with your Royal Mail shares?

Investors must decide whether to keep them or take a quick profit

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

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing

Other places that have held independence referendums
Jonas Gutierrez (r) competes with Yaya Toure (l)

Newcastle winger Jonas Gutierrez reveals he has testicular cancer - and is losing his trademark long hair as a result

Arts and Entertainment
Blossoming love: Colin Firth as Stanley and Emma Stone as Sophie, in 'Magic in the Moonlight'

Actors star in Woody Allen's 'Magic in the Moonlight'

peopleThe Times of India said actress should treat it as a 'compliment'

Watch this commuter wage a one-man war against the Circle Line
We are phenomenally good at recognising faces; the study showed that humans have been selected to be unique and easily recognisable

Human faces unique 'because we don't recognise each other by smell'

Home body: Badger stays safe indoors
lifeShould we feel guilty about keeping cats inside?
A male driver reverses his Vauxhall Astra from a tow truck

Man's attempt to avoid being impounded heavily criticised

Arts and Entertainment
US pop diva Jennifer Lopez sang “Happy Birthday” to Gurbanguly Berdimuhamedow, president of Turkmenistan
musicCorporate gigs become key source of musicians' income
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig believed to be donning skis as 007 for first time
The Guildhall School of Music and Drama is to offer a BA degree in Performance and Creative Enterprise

Arts and Entertainment
Pulp-fiction lover: Jarvis Cocker
booksJarvis Cocker on Richard Brautigan
Arts and Entertainment
Robin Thicke and Pharell Williams in the video of the song, which has been accused of justifying rape
music...and he had 'almost no part' in writing it
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Recruitment Consultant - Soho - IT, Pharma, Public Sector

    £20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

    Sales Executive

    £20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

    Payroll & Accounts Assistant

    £20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week