Royal Mail share rally: not necessarily a good thing

Shares in the organisation continued to rise in the first day of unconditional trading - but the Business Select Committee isn't impressed.

by Emma Haslett
Last Updated: 15 Oct 2013
It’s not often rising share prices are seen as a bad thing – but welcome to the wonderful world of privatisation: Royal Mail shares continued their inexorable rise in their first day of unconditional trading (ie. ordinary investors were allowed to start selling their shares) this morning.

At one point, the price hit 490p, up from the 330p they were sold at when the company listed last Friday. A handy ticker on the Telegraph’s website shows just how much the initial minimum investment of £750 is worth: at the time of writing, it stood at £1,092.54.

Does this mean shadow business secretary Chuka Umunna was right and the company was undervalued when it went on sale?

There is, of course, an argument that the clamour for shares was precisely because they were so reasonably priced, but that doesn’t seem to be what the House of Commons Business Select Committee thinks. It’s considering widening its inquiry into the privatisation so it can question Lazard, the government’s main adviser, over how it decided on the price of the original privatisation.

Adrian Bailey, the committee’s chairman, said the decision was prompted by business secretary Vince Cable’s performance in front of MPs last week.

‘There was obfuscation,’ he said. ‘We want to explore more fully how they came to that valuation.’

The other point the committee is planning to investigate is Royal Mail property. It has three massive sites across London – one at Mount Pleasant, one on the South Bank in Nine Elms and one near Paddington. Last week, a letter from Umunna to Cable pointed out that with property prices in London rocketing, the sites will be worth far more if Royal Mail turned them into residential developments itself and flogged them, rather than selling them off undeveloped. It could make over £1bn, reckons the analyst.

As if that wasn’t enough, the National Audit Office is also said to have started preliminary investigations into the IPO and Cable’s role in proceedings. So Cable’s joy at finally achieving his long-held ambition might be short-lived.

Then again, he can look on the bright side: share prices could yet plunge – particularly if the Communication Workers Union gets its way. The union has been plotting a strike for several months, the ballot for which takes place tomorrow. A decision to strike would almost certainly affect prices. So just as ordinary shareholders are allowed to start trading, the rally might come to a sudden end. Sod’s law, really, innit?

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