Are Royal Mail shares being sold 'too cheap'?

An instant £250 profit? That's what's being touted by some City experts for Royal Mail investors as late demand for Royal Mail shares surge. You need to snap them up by midnight tonight (and you only need a debit card to do so).

However the privatisation - the biggest since British Rail in the 1990s - has seen Labour claim the float's way too cheap.


First, how to buy: Royal Mail shares are being sold at up to £3.30 each, though some claim the shares could hit £4.50 by the end of the week. You need to invest a minimum £750 (the maximum is £10,000) in order to buy in though. Be advised you will shoulder a 1% fee when selling. Or you can opt to buy through a stockbroker.

Full trading commences on 15 October. Accusations of being sold too cheap, leaving taxpayers short-changed, are flying. One accuser is broker Panmure Gordon. "The valuation is compelling in our view," it says. "Based on other publicly traded mail companies, we would initially value this business at a range of £3.7bn-£4.5bn."

Prime chunks of real estate

Labour's Shadow Business Secretary Chuka Umunna agrees. Umunna's written to Vince Cable claiming the float gives the potential "for a privatised Royal Mail to sell off prime development sites across the country and relocate facilities to other locations where property prices are cheaper".

Plus, he adds, "the prospectus document does not clarify which of Royal Mail's other 2,000 sites across the country have been earmarked for potential sale and development or what work has been carried out on this."

Income champ

Meanwhile, for investors wanting income, Royal Mail looks very attractive. Estimated returns could be as high as 7% compared to other income stalwarts like Centrica (4.5%) and SSE (5.7%), though the overall yield will depend on how much the company is valued at (we should know by Friday).

The Royal Mail could even enter the FTSE 100 come December when the deck is reshuffled. Around 70% of Royal Mail shares are being offered to institutional investors with 30% to private shareholders. But more Royal Mail shares - very likely - could be released to private shareholders if demand is strong enough.

But the worry for the taxpayer who doesn't buy into Royal Mail remains: what's the balance between a fair deal, and instant profits for City investors and private speculators?