Royal Mail shares: expert advice on whether to apply
Investors rush to buy shares but analysts are divided on whether it will pay off in the long-term
WITH less than 48 hours before the Royal Mail share offer draws to a close, finance experts have been offering their views on whether or not to invest.
The closing date for applications is midnight on Tuesday, with a minimum investment of £750. The popularity of the sale has already sparked a political row, with Labour claiming that the Royal Mail has been undervalued.
But that could be good news for private investors, with predictions that shareholders will enjoy an instant profit of up to 40 per cent. Shares will initially be priced at between £2.60 and £3.30 each, but are expected to rise sharply when official trading starts next week.
David Jones, chief market strategist at IG Index, tells the Financial Times that interest in the so-called "grey market", where a company's shares are traded before their official listing, is at its strongest in the UK since LastMinute.com floated in 2000 – and the Royal Mail sell-off could even match the popularity of Facebook, which listed in New York in May last year.
Jones believes the interest is partly down to the Royal Mail being a well-known company and people's memories of the high-profile privatisations in the 1980s, which included BT and British Gas.
In the Daily Telegraph, Richard Evans sees pros and the cons to buying the shares. The company's growing parcels business and restructuring programme should mean bigger profits and therefore attractive dividends, he reports. But the threat of strike action from the company's unionised workforce and its declining letter business could be reasons to stay clear.
Joanne Hart of the Mail on Sunday believes the price is likely to rise once trading officially begins, particularly as large investors will be clamouring for the stock. "On that basis, nimble investors should be able to make a return by selling the shares quickly," she says. "A more difficult question is whether this stock will prove a good, long-term investment. In many respects, the answer is yes."
Revenues rose from £8.4bn in 2011 to £9.1bn in the year to March 2013, notes Hart, while processes, such as sorting, have become automated, systems have become faster and employee numbers have fallen.
But Gemma Godfrey, of wealth manager Brooks Macdonald, says the long-term outlook will depend on how the Royal Mail "manages the competing demands of its customers and shareholders, its ability to restructure and its management of the balance between growth in parcel traffic and decline in letter deliveries".
In The Times, Mark Atherton concludes that those who have some spare cash "could consider putting money into the float as a short-term punt". But, he says, whether it will prove a good long-term investment is "much more doubtful". ·