I guess many readers will, like me, be disappointed with their allocation of Royal Mail (LSE: RMG) shares. If you did some research and made a considered investment judgment, then you might well feel short-changed at getting the same number of shares as casual punters drawn in by the chance to make a quick buck.
The dual message from politicians that the issue was under-priced but the share price post-flotation would be ‘frothy’ certainly wasn’t designed to encourage long-term investing. It’s churlish to begrudge the other guy’s profits, but I can’t help thinking the government has shot itself in the foot over future, less sexy, privatisations. I doubt I’ll bother.
Curate’s egg
For me, Royal Mail is a curate’s egg type of investment story: good in parts. A market-leading position in parcel delivery is attractive. But the millstone of the declining letters business and the obligations that are inseparable from it could prove burdensome.
The low issue price made the investment case. A prospective 6% yield created a comfortable margin of safety. As I write, the shares are over 470p and the yield down to 4%. If the union announces a strike before you read this, the shares might be heading southwards. I’d have held on to a decent allocation through the volatility, but I sold my £750-worth.
IPOs
Initial public offerings can be binary: they do well, or they do badly. There is a more reliable way of profiting from the wave of new issues surging onto the London Stock Exchange — by being the seller of the shares. If the seller is a listed company, there’s a good chance that a successful flotation will boost the seller’s share price.
One company that could be shaping up for such a boost is hotel and restaurant operator Whitbread (LSE: WTB). The regular stock market rumours that it will float its Costa Coffee chain gained more credence last year when the finance director moved sideways to run the division. With the new issues market in buoyant mood, the time could be right.
Whitbread has big plans to expand its budget Premier Inn chain, and all parts of its business should benefit from the UK’s economic recovery.
Also rumoured to be looking at floating is property website Zoopla, 52% owned by the Daily Mail (LSE: DMGT). With the housing market spearheading the UK’s economic recovery, it would be a good time to realise the value created after DMGT merged its property websites with the start-up that has grown to be the UK’s number two property website.
Reinvented
Newsprint may be in decline, but the Daily Mail has reinvented itself as an information-driven multi-media and events firm, with the most visited newspaper website in the world and a slew of consumer and B2B businesses. It’s the kind of transformation that its almost-namesake Royal Mail will have to pull off as its traditional business declines.