Royal Mail is the Robin Hood-in-reverse flotation, taking money from the poorest in society and handing it to the rich. This is not an exaggeration, nor do I intend to indulge in a piece of left-wing polemic. It’s just a fact. Here’s how you get there.
Your starter for ten is that the business has been woefully under-priced by the terrible twosome of Goldman Sachs and UBS, which stand to share in upwards of £20m in fees along with a battery of well-paid lawyers, PR consultants, accountants and other City flunkies (which is a substantial state-funded gravy train to begin with).
In fact, Panmure Gordon, the stockbroker, reckons that the official valuation of up to £3.3bn could be as much as £1.2bn light based on what other countries’ (mostly private) postal services are worth. It has also been argued, by Labour’s Chuka Umunna that the group’s property assets, a number of which are surplus to requirements, aren’t being properly reflected in the price at which the company is being sold off.
If you’re going to sell something to investors via the stock market, you have to let it go at a bit of a discount. Valuations are always open to debate. Put two analysts in the room and give them a company like this, and they’ll give you three or four different estimates for how much they think it’s worth.
However, there does seem to be a consensus emerging that people who subscribe for shares in Royal Mail are being offered an extraordinarily good deal even if the shares go at the top of the valuation range.
If you want evidence for that, just look at the demand. City investors don’t fall over themselves to get involved if they feel they’re being sold a pup. This is no pup. The queue of institutions stretches from the City, past Westminster and on into Mayfair and Kensington. Institutional fund managers love to play with loaded dice, and that is what the Government has handed them.
But it gets worse than that. Forgotten in all the fuss about the valuation yesterday is the fact that this is only happening because the Government took the Royal Mail’s under-funded pension scheme on to its books. That meant £28.5bn of assets (hooray) but long-term liabilities of up to £10bn more (boo). Even were the Government to revisit its valuation and get something close to the £4bn Panmure thinks the Royal Mail in its current shape is worth, taxpayers would still be losing out massively as a result of this.
A minority of the shares, it is true, have been allocated to retail investors. So relax. We can at least join the fun. But tickets for the cheap seats start at £750.
The City, meanwhile, will be travelling in club class. And the poor? Those who have disproportionately suffered from the financial crisis, the economic slowdown and the austerity that has followed on from it? As they tend to be generally more reliant on the state’s support than the wealthy, they are the big losers. As ever.
Retail recovery may face new blows yet
Following on from downbeat data on footfall come today’s figures on retail sales from the British Retail Consortium.
They show that sales are still growing but only just, and were it not for the ever-buoyant online channel, certain categories of product would have gone into reverse. It’s also worth remembering that inflation plays a role in bolstering these figures.
In other words, the recovery of the sector is built on straw. Even a gentle breeze could push it over, and the continuing shutdown of the US government could provide more than just a breeze if it isn’t sorted out before too long. It isn’t just the American economy the Republicans are holding to ransom.
Windfalls, such as compensation from mis-sold payment protection insurance, have helped to bolster sales but they are coming to an end.
There may be a few more to come if people pocket a quick buck from the Royal Mail privatisation. But retailers know they have no reason to sleep easy. Living standards are still falling. For the sector to keep its green shoots from being strangled by a winter frost, it will have to continue pricing keenly.
The lack of pricing power ought to be good news for shoppers. It’s even better news for the Bank of England, where monetary policymakers will enjoy a happy Christmas only if inflation continues to be kept at bay.
China cools but Burberry has other irons in the fire
One retailer whose bubble appears to have burst is Burberry, at least if you were listening to its boss Angela Ahrendts, who warned in an interview with a French newspaper the luxury slowdown in China may be long-term.
Economic growth this year was just 7.5 per cent – poor China – and it seems conspicuous consumption is no longer cool. So no more wandering around flashing pricey designer labels for the beneficiaries of that nation’s spectacular boom.
The stock market took heed and marked the shares down. A bit. But they’ve been frothy for quite a while now. Like China’s economy, Burberry’s share-price growth might be a bit more modest from here on out, but there’s still plenty for it to shoot for. Latin America, Indonesia, who knows, before too long there may even be parts of Africa with enough newly minted people to pay through the nose for what Burberry sells so they can show it off. That would represent progress, at least of a kind.
And to think, they used to get all worried about football fans wearing cheap knock-offs. Today’s Burberry, with its eyes focused East, South and South West, would probably barely notice.