Royal Mail IPO: First class delivery or Junk Mail?

[beanmuncha]

London business leaders on whether Royal Mail shares will be worth your money

To Royal Mail or not to Royal Mail, that will be the question. When Royal Mail eventually floats later this year - as indeed it almost certainly will despite ongoing protests from the unions – the public will be invited to buy up chunks of a nearly 500-year-old business, which is likely to be valued at £3bn.

If you purchase Royal Mail shares, you will be buying into a historic part of Britain and into a service that Britons rely on everyday.

Then again, you will be buying into a business that, to put it mildly, has its fair share or shortcomings. If all was well, the government wouldn’t be going through the painstaking process of privatisation. After all, we can’t just blame the ever quickening pace of technological change or the recession for the postal services not making money.

America’s founding fathers set up the Post Service, their equivalent of the Royal Mail, with the full knowledge that it would bleed their coffers dry. But they chose to set up, subsidise and secure the mail because they believed that all citizens had an inherent democratic right to communicate freely and easily. It’s that very idea of providing a public service that you will be asked to buy into when you invest in Royal Mail, which makes the choice far from black and white.

It will be a tough political and personal decision for many, which is why we rounded up some of our best commentators and asked them what they would do when confronted with that almighty question – to buy or not to buy?
Entrepreneur Will King, better known as the King of Shaves:

“Firstly, Goldman Sachs is the leading bank on the deal. So, I’m guessing that if the vampire squids are involved, there’s money to be made.

“Secondly, our Government removed its multi-billion pound pension deficit. This has been returned to senders, i.e. us.

“Thirdly, Royal Mail just made a rather decent operating profit. It has doubled from £152m to £403m last year.

“And fourthly, it appears that Royal Mail workers are to receive free shares. Although they won’t be allowed to vest them for a while, they will get to be ‘employee owners’ which is a very John Lewis partnership, which for sure makes you part of a team ready to deliver.

“With Amazon continuing to devour the high street’s lunch, so plenty of parcel shipments will need to be sent, and of course, the business of sending letters never seems to go out of business, irrespective of the cost of a first or second class stamp.

“Sending an e-birthday card is so, well – lazy – and there are 65 million birthdays, which makes Royal Mail look even better.

“However, the big issue will of course be how the ‘all powerful’ trades union movement responds when Royal Mail gets pushed through the letterbox of private ownership. Sticky things lie ahead including making cost savings, enhancing working practices and the re-negotiation of service contracts.


Pimlico Plumbers boss, Charlie Mullins said:

“If they’re going to privatise Royal Mail – and it seems a pretty good idea to me – there’s got to be far worse investments you could make.

“Historically the public and institutional investors have done pretty well out of publically floated utilities.

“It’s a great time to list Royal Mail on the London Stock Exchange, with it returning to strong profits in recent times.

“And with the massive growth in parcel deliveries as a result of internet sales models it looks like investors can look forward to some healthy dividends.

“I think this deal is well overdue and by moving Royal Mail onto a more commercial footing it will put it in a position to properly compete with other private freight operators, many of whom, like DHL of Germany and TNT Express of the Netherlands, to name a couple of big international players, who have had quite a head start on Royal Mail.

“My only concern would be that part of the terms of any sell-off would require Royal Mail to continue to be obliged to provide a six-day-a-week postal service in the UK, for the continued benefit of business and private users.”


Justin Urquhart Stewart, founder of Seven Investment Management:

“When it comes to the float though - oh dear have we really learnt nothing. Are we really going to go through the expensive (especially when you look at all the marketing that will be accompanying it) process of a popular public share offering?

“We know from previous experience that ‘popular share ownership’ didn’t work in creating a mass movement of public ownership. What it did create was a mass movement of share punting on a few stocks ‘priced to go’.

“[As I have said before, there is an alternative way.] With a value of something in the region of £2-3bn, here is the first valuable asset which could be transferred into the UK’s own Sovereign Wealth Fund (SWF). I say the first as I have mentioned before a host of other smaller value assets sitting in the government’s family silver caddy, which could then be also added to our SWF.

“This would therefore enable investors to invest into a portfolio of companies which the SWF would be able to manage effectively as an investment manager of a longer term private equity business.”

“It could buy and sell stakes as it thought fit and the underlying shareholders would benefit from the successful operation of this portfolio of companies over the years.

“This would avoid the messy and fraught with danger route of trying to rush some of these asset sales in a manner determined by the government’s short term need for cash rather than good evaluation of market timing for the benefit of the business.”


Jon Moulton, founder of Better Capital

“The Royal Mail sale, is it going to be a new return to sender?

“This seems very odd to me. The Royal Mail needs to be a public service otherwise the more remote regions of Great Britain will get even more isolated.

“Plus, the public will still have to pay the very generous pension scheme and doubtless the value will flow to investment banks and professionals – a relatively small amount will dent the public deficit.

“The Royal Mail really should have been capable of being efficient in the public sector.”

[Cut Off King]

Sticky things lie ahead including making cost savings, enhancing working practices and the re-negotiation of service contracts.

I don't understand, Moya said everything will stay the same after privatisation.

[pinstripe]

" so plenty of parcel shipments will need to be sent, and of course, the business of sending letters never seems to go out of business, irrespective of the cost of a first or second class stamp."

But...but...but...the way our employers tell it, in five years the only letters we'll be delivering will be the ones that we've already stashed in our garages.

[UnhappyGremlin]

Sticky things lie ahead including making cost savings, enhancing working practices and the re-negotiation of service contracts.

I don't understand, Moya said everything will stay the same after privatisation.

Are you suggesting she wasn't entirely truthful?
I think everything WILL be EXACTLY the same after privatisation.
For about 5 minutes......