Bookmakers project 340p-a-share debut

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iNVEZZ.com Wednesday, October 2nd: Traders appear to be upbeat about the upcoming initial public offering of Royal Mail – one of the most significant privatisations in the UK since the sale of the railways in 1990s, The Times has reported.

According to the news item, spread-betting firms operating a so-called grey market in Royal Mail shares — a bet on what the price will be at the close of its debut day’s trading on October 11 — were indicating last night that the shares could hit 340p.

That is higher than last Friday’s 300p indicated by bookmakers and well above the 260p-330p price range at which the UK government has indicated it will set the Royal Mail IPO (Royal Mail to be valued at up to ₤3.3 billion in IPO). The latest projection suggests that ministers may be persuaded to price the float towards the top end of the range, meaning that investors will receive fewer shares for the minimum £750 that they have to put up in applications, which have to be submitted by the end of next Tuesday.

Unnamed sources told The Times last night that caution over the Royal Mail IPO had eased after comment from banks involved in the offering at the weekend. It was revealed that there was enough interest in the shares from institutional investors to buy all the stock in a float, which could result in the government’s holding being reduced to 30 percent.

Royal Mail’s float takes place during a ballot for strike action at the group. Despite the threat of industrial action by 115,000 members of the Communication Workers’ Union, investors appeared to be buoyed by the prospect of a dividend payout that will mean the shares yield at least 6.1 percent. The prospectus also indicates that the business is confident of strong profit growth by increasing its operating margin from 4.4 percent to 7.5 percent, The Times has noted.

Investors may benefit from sale of Royal Mail’s disused London property

The Telegraph yesterday reported that investors who buy shares in Royal Mail could benefit from a huge windfall from the sale of a disused sorting office in central London. According to one fund manager, the proceeds from the 13-acre site of the former Nine Elms mail centre which will be sold for redevelopment could reach £500 million.

Fund managers have expressed caution, however, as Royal Mail may use the windfall to plug a shortfall in its pension scheme rather than return it to shareholders or use to invest in the company. Although the pension scheme has been transferred to the government, investors want reassurance that it would have no claim on the proceeds of property sales.

Chris White, the head of UK equities at Premier Asset Management was quoted by The Telegraph as saying: "Although most of the pension assets and liabilities have been transferred to the Government, we would want the issue of land to be cleared up."