Last minute rush to buy 'undervalued' Royal Mail shares as investors sense instant profit

Private investors stand to pocket an instant 25 per cent return after the sell-off
  • @lucytobin

With the deadline for buying shares in the Royal Mail midnight tonight, investors were this morning rushing to apply, in the hope of pocketing an instant return of up to 25 per cent,

Throwing weight behind Labour’s claims that the Government has undervalued the 500-year-old operator by £600m, City bets placed ahead of Royal Mail’s stock market debut forecast that the shares – on sale for no more than £3.30 each – will leap to as much as £4 on the first day of trading.

IG Index, a spread-betting company, expects Royal Mail’s closing price on Friday, the first day of conditional trading, to be between 392p and 412p. As a result hedge funds, investment banks and private investors will enjoy an instant profit of as much as 25 per cent.

Private investors face a deadline of midnight on Wednesday for purchase applications, but stockbrokers kept their offices open all weekend in the rush to snap up shares.

IG’s chief market strategist David Jones said demand had been as strong as when Facebook floated in the US.

Mr Jones said some investors had even started selling shares on the “grey market”, which takes place before shares are officially launched, because they were already making a profit on their purchase price.

“The private investors who are subscribing to Royal Mail are going to do well, the same way they did when BT and the electricity companies floated,” he said. “It’s easy to criticise the Government for selling it too cheap, but ministers had to tread a fine line between making sure there was appetite to be buyers, and pricing it so expensive that it could be a failure.”

Ahead of the announcement of the offer price on Thursday at 7am, where the Government’s sale price would see it valued at up to £3.3bn, Gert Zonneveld, managing director of stockbroker Panmure Gordon, predicted Royal Mail could prove to be worth as much as £4.5bn.

Labour has attacked the Government over its valuation of the business and is preparing to challenge the Coalition over the sell-off in the Commons this week. Chuka Umunna, the shadow Business Secretary, told The Independent: “There is mounting evidence to suggest Royal Mail has been very significantly undervalued, meaning taxpayers are set to lose out on hundreds of millions of pounds.”

The Department for Business argues that a better assessment of the company’s true value will not be possible until a few months after the flotation.

To get the float on its way, the Government and Royal Mail have paid City firms fees of about £50m. Mr Umunna added that Royal Mail’s prime property assets could be sold off, giving a quick windfall to investors but leaving taxpayers short-changed. Royal Mail’s prospectus highlights London sites at Mount Pleasant and Nine Elms as being “surplus”.

Meanwhile, union members are expected to push ahead with strike action later this month. The Communication Workers Union has balloted its members on strike action over the planned privatisation. The vote closes on 16 October with the earliest any strike could be held a week later.