As sure as day follows night, Royal Mail’s newly floated stock shot up yesterday morning. Despite a slight dip around lunchtime, the shares were still priced at a lusty 455p by the close of trading. Given that the state sold out at 330p, it was perhaps not surprising that the frenzy of activity – adding £1bn or more to the valuation of the centuries-old company – prompted yet another round of claims that the Government had botched the deal and left the taxpayer short-changed.
Intuitively appealing as such an analysis may be, it is not the easy truth it would seem. There are two basic points here. The first is that, as soon as Labour’s business spokesman, Chuka Umunna, started talking about undervalued shares and a “massive bonanza”, it was inevitable that demand would take off and drag the price up with it. It is difficult to imagine a more obviously self-fulfilling prophecy.
Then there is the much-bandied notion of a “right price” to consider. The most crucial thing in any flotation – particularly in the privatisation of a state asset – is to ensure the sale is successful. Had the Government priced Royal Mail shares higher (and Mr Umunna not put his shoulder so assiduously to the marketing wheel), the risk is that the deal might have flopped – which would be not only a political catastrophe, but not good news for the public purse either. And with another 30 per cent of Royal Mail set for sale next year, it is better to err on the side of caution and whet retail investors’ appetite for more.
There is, of course, a balance to be struck. A slightly higher purchase price, the Business Secretary’s critics maintain, could have brought in more for the Treasury without going too far and spiking demand. Perhaps. To be oversubscribed by quite so much, and out on the price by more than a third when trading starts, does raise some questions, even if it was with Mr Umunna’s help. An extra £1bn to spend on, say, roads would also be more than welcome in these straitened times. But there is also merit in a certain windfall in the pockets of small-scale investors, and not only in terms of electoral gratitude.
Furthermore, behind the “froth” – to borrow Vince Cable’s description – there is still reason to consider the price a fair one. After all, even as some investment analysts have spent the last week pointing out Royal Mail’s lucrative property portfolio and robust parcel-delivery operation, more sober heads note that the company is still barely a year out of serial loss-making decline, has industrial relations disputes looming and was valued broadly on a par with its industry peers.
More than anything, it is simply too soon for the certainty that many are so swift to evince. Until Tuesday, the shares are subject only to “conditional dealing”; institutional investors can trade but individuals cannot. Once the restrictions are lifted, and those tempted in by the promise of quick cash make their exit, the stock may drop back. Even so, the over-excitement of the flotation may distort the market for some weeks. Once the price has settled down, if it is still far above 330p, there will be questions for Mr Cable to answer – most likely posed by the National Audit Office. Until then, however, wild talk of giving away the family silver is hardly less speculative than the stock market itself.