11 Oct 2013

Royal Mail share price rises sharply on debut

Shares in Royal Mail increase significantly on the first day of trading on the stock market, renewing fears that the company has been under-valued by the government.

Shares rose from the 330p offer price to reach a high of 456p, before falling back slightly. This means that 690,000 ordinary investors who bought £750 worth of stock gained more than £270 each.

Shares were sold at the top end of the price range set by the government, valuing the company at £3.3bn, but investors immediately pushed the price higher.

Speaking to Channel 4 News, Business Secretary Vince Cable denied Royal Mail had been under-valued.

‘Inherently unstable’

“We sold at the top end of a range that had been very carefully thought through as a result of establishing the value over a long period of time in a market which is inherently unstable,” he said.

“If the American stock market had crashed, as it could have done a couple of weeks ago, it could well do in future, you’d be standing asking me why is it we didn’t manage to sell any shares.”

Asked by Culture and Digital Editor Paul Mason why he had not over-ridden the offer price when it became apparent that the sale was hugely over-subscribed, he said: “I could have done and I could have joined the speculators and spivs.

“I wasn’t interested in doing that. I’m interested in having a stable, long-term shareholder base for the company that will help it to compete and perform its universal service.”

The privatisation of a 52.2 per cent stake in the 500-year-old Royal Mail has raised £1.72bn for the government. Ordinary investors who applied for £750-£10,0000 worth of shares received stock worth £749.10 before the flotation. But those looking to invest more than £10,000 have not received anything because the offer was seven times over-subscribed.

A third of the stake in Royal Mail, not including the 10 per cent of free shares being given to staff, was allocated to retail investors, with the remainder sold to institutions, including pension funds, insurers and hedge funds.


The general secretary of the Communication Workers Union, Billy Hayes, called the sell-off “a tragedy”.

If the American stock market had crashed… you’d be standing asking me why is it we didn’t manage to sell any shares. Vince Cable, business secretary

Mr Hayes predicted that it would not make “one scintilla of difference” to employees’ intention to vote for strike action next week.

He told BBC Radio 4’s Today programme: “This is a sham, really. The company has been under-valued… it’s basically David Cameron rewarding his mates in the City.

Read: Royal Mail - shares for 95 per cent of small investors

“Vince Cable, one of the cleverest men in British politics, has made one of the stupidest decisions he is ever likely to make as a politician.”

“It’s a tragedy. This company is nearly 500 years old and it’s being privatised for no reason.”

‘Dazzling debut’

Mr Hayes went on to acknowledge the majority of Royal Mail staff have accepted shares in the privatised company, but claimed that this did not reflect enthusiasm for privatisation.

He said the real test of whether staff are happy with privatisation will be on Wednesday, when they are voting on strike action.

The shares launch was the first day of so-called conditional trading, when City institutions can trade with each other.

General investors will not be able to cash in on their shares until Tuesday, the first day of full trading, although those who applied for shares through brokers offering conditional dealing will have been able to trade from Friday.

Joe Rundle, head of trading at ETX Capital, called the surge in Royal Mail shares a “dazzling stock market debut”.

But he said in future negatives such as the threat of industrial action, a lack of adequate capital and unclear growth strategy could weigh down the stock price.