Royal Mail: Myners report clears government over sell-off

Former minister says Royal Mail share price could have been set £180m higher – but it would have been risky

LAST UPDATED AT 10:26 ON Thu 18 Dec 2014

A report commissioned by Vince Cable from Lord Myners, the former Labour city minister, has broadly backed the way the Royal Mail sell-off was handled despite finding that the new company was undervalued by £180m and calling for greater transparency.

Myners said the privatisation was handled with "considerable professionalism" and represented "significant value" for the taxpayer.

As for the initial price of shares in Royal Mail, The Guardian recalls that opponents of the sell-off, including some MPs, have claimed it was set as much as £1bn too low.

Myners's figure of a £180m undervaluation is comparatively modest, therefore. He told the BBC that "if any money had been left on the table it was pretty small".

The extra £180m could have been earned if the share price had been set 30p higher, says Myners in his report. But he adds that doing so would have involved "substantial" risk.

However, Myners did say lessons could be learnt for future privatisations. He called for greater transparency and suggested using digital auctions which would "make the sale process much more flexible".

Royal Mail's share price leapt by 38 per cent from its initial price of 330p on the first day of trading in October 2013. They later peaked at 615p, prompting anger from MPs and others. The price yesterday was 394p.

In a report that broadly exonerates the government, the former minister writes: "I regard the Royal Mail privatisation to have been a complex exercise executed with considerable professionalism. Many previous governments attempted to sell but failed.

"The sale was done against a backdrop of global economic uncertainty and a threat of industrial action, which go a long way towards explaining the cautious approach taken throughout the process.

"We found no evidence to challenge the general assertion that an IPO price greater than 350-360p could have been achieved and we accept that a decision to revise the range would have come with added uncertainty and risk. The right decisions were made." 


Royal Mail shares dive as profits fall by a fifth

19 November

Royal Mail shares fell by almost six per cent when trading began this morning after the company announced a 21 per cent fall in half-year profits.

Competition from online sellers offering same-day delivery and other courier services continues to put pressure on the recently privatised mail service.

Royal Mail bosses said they had halved the company's expected growth rate for UK package deliveries to just one or two per cent after a push from e-retailers such as Amazon to offer parcel delivery options of their own.

Pension costs also contributed to the £279 million fall in operating costs, Sky News reports.

Overall letter volume fell by three per cent, but profits from letter delivery increased by one per cent due to increased stamp charges.

In spite of the fall in profits, chief executive Moya Greene said: "I am pleased with our overall performance. We have delivered two per cent revenue growth together with margin expansion, in line with our expectations."

She added that Royal Mail was would work with e-retailers "to be more flexible" and that Royal Mail may accept different types of parcels it had previously declined to deliver.

Greene said that the postal service would introduce later acceptance times and weekend collection to help retailers to deliver goods more quickly.

Michael Hewson of CMC Markets told The Guardian that deliveries are becoming an increasingly difficult market: "The explosion in on-line retailing, click and collect delivery and the use of mobile apps this year is likely to see fierce competition between logistics providers with UK Mail, UPS and Fedex likely to provide plenty of competition, while the recent tie-up between Amazon and Connect Group to provide a 24-hour service for parcel delivery to selected local locations, like underground stations, newsagents and shopping centres, could make a significant dent in Royal Mail's revenue, particularly since Amazon is Royal Mail's largest parcel customer."

Royal Mail shares fell from 477p to 449.45p in the first hour of trading, before recovering slightly to 455.5p by 9.30am.

When the company was privatised just over a year ago shares were sold at 330p each. They peaked at 604.5p in January this year.


Royal Mail shares plummet after parcel revenue warning

22 July

Royal Mail shares have plummeted to their lowest level since the company was privatised in October, following warnings that the parcels revenue for the year would be lower than expected.

The company warned that price changes and competition from its rivals have hit its parcels business, with revenue down one per cent in the three months to 29 June compared to the same period in 2013.

The company said it was still likely to meet expectations for its overall annual performance, with revenues for the overall group climbing two per cent in the last quarter.

Nevertheless, stock dropped by as much as four per cent to 445.1p this morning – its lowest price since Royal Mail was floated in October. Shares were initially sold at 330p but immediately surged to 450p at the start of trading.

The sharp rise was, at the time, dismissed as "froth and speculation" by Business Secretary Vince Cable. He has since accepted demands by the National Audit Office for a review into the government's listing process.

The stock has been steadily declining since a peak of more than 600p in February.

Royal Mail said it had also been hit by the impact of Amazon's move to scrap free delivery on orders below £10 – although the company said it is "fighting back" with measures such as a new Sunday delivery service for online shoppers.

"It appears that the honeymoon period is over for Royal Mail as the realities of its competitive environment intensify," Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, tells The Guardian.

The Daily Telegraph says small investors "are still in the money after the controversial float, but their potential profits are slowly being whittled away".

A report from the Government's Business, Innovation and Skills Select Committee, published earlier this month, found that taxpayers may have lost out on about £1bn from the undervaluing of Royal Mail.

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