Should you snap up shares in Royal Mail?

The government announced this week its intention to privatise Royal Mail though a flotation on the London Stock Exchange in this financial year.

The state-owned postal service could be valued up to as much as £3bn and is sure to tempt private investors, but would this be a wise move?

That depends on the offer price and the market reaction. It seems unlikely that the share offer will see investors double their money on the opening day of trading, as happened with some of the government sell-offs in the 1980s.

“We don’t have the details of the IPO (initial public offering) yet,” pointed out Richard Hunter of broker Hargreaves Lansdown. “But interested investors can register with a stockbroker now and when a prospectus and application pack becomes available they will contact you with all the information needed to invest.”

Crucially, the plan is to involve the company’s workers. Some  10 per cent of shares will be kept aside for Royal Mail’s 150,000 employees, who will get them for nothing. They will also have first refusal on shares made available to the public.

Dr Tim May, chief executive of The Association of Private Client Investment Managers and Stockbrokers, said: “Individual investors tend to be longer-term shareholders and can be active participants in the companies they own. That is why the issue of shares to staff is a welcome step, giving them a stake both in the future profitability of their company and in its governance.”