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
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Sony hack: Angelina Jolie branded 'seriously out of her mind' in further embarrassing leaked email saga
Panic Saturday: 13 million Britons spend £1.2bn – while 13 million others across the country live in poverty unable to afford food
iJobs Money & Business
$200 - $350 per annum: Carlton Senior Appointments: Managing Producer Office...
$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...
Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Day In a Page
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens