The Great Royal Mail Robbery – Royal Mail shares too cheap

Great Mail RobberyThe government has undervalued Royal Mail by as much as 80% according to city stock brokers Canaccord Genuity. They reckon that shares in Royal Mail should be valued at £5.59, not the paltry £3.30 which is the price set by the government.

What this means to the tax payer is we’ve lost billions of pounds due to the blunder. What it means to private investors is that they’re almost guaranteed to practically double their money on Tuesday morning when shares start open trading and they can cash in.

That is of course if you got any shares in the first place. Over 700,000 of us applied for shares, but 35,000 people who applied for more than £10,000 worth of shares will miss out entirely and get none. If you applied for up to £10,000 worth of shares you’re still only get £750 worth, so if you were hoping for a bonanza pay day you were probably right, but you’ll only be able to double £750 of your money, not rake in a £10k+ profit.

Institutional investors will also miss out. So strong was demand to snap up Royal Mail shares at a rock bottom price that Robert Peston, BBC business editor, estimates that they made offers of around £27 billion (there’s only about £1.7 billion worth of shares to go round, so the price was attractive enough to have sold Royal Mail 16 times over).

Naturally the CWU aren’t too impressed saying Royal Mail has been “flogged on the cheap” and calling it the “The Great Royal Mail Robbery”. They’ll be protesting outside the London Stock Exchange on Friday morning when conditional trading gets underway. Full trading of Royal Mail shares is expected to take place from Tuesday onwards, in the mean time only institutional investors can trade and should the IPO collapse for any reason (doubtful), then the trades will be rolled back.

It’s a bit of a shame really as no one is going to be happy. Those that wanted to make a quick buck on Royal Mail will be peeved that they didn’t get the shares they wanted. Those that didn’t want Royal Mail sold will be berating the government for flogging it too cheaply. Even Investors will be unhappy as unless there’s an old boys network going on they too will miss out on the allocation they bid for.

Doubtless the government will call the sell off a success. It’s hard to agree with them based on demand and especially if share prices do soar once the markets open. Royal Mail would probably have raised more cash for the country if Vince Cable had simply stuck bundles of shares on eBay auctions and let the market determine a fair price.

Any eBay seller could have advised Mr Cable (who is after all, supposed to be the “Business” Secretary), that it’s easy to flog something if you price it too cheap. Just ask anyone that’s mistyped their Buy It Now price and seen their item snapped up in seconds before they could correct the mistake.