Labour Party says UK government “botched” Royal Mail’s privatisation
Britain’s Labour Party has said three months on from its privatisation, Royal Mail’s current share price is proof the national postal service was undervalued at its IPO. The opposition party was taking the government to task on the back of comments made by the business secretary Vince Cable back in October, which suggested that the rallying of Royal Mail’s share prices would only be a temporary affect.
Cable at the time had suggested that what mattered was where the price settled “if we look back at this in three months’, six months’ time, or indeed years to come”.
Today Labour’s shadow business secretary Chuka Umunna jumped on the three-month anniversary of Royal Mail’s flotation on the stock market to point out that the company’s share price is now 562p, more than 70% higher than the 330p initial valuation.
He said Cable’s dismissal that accusations the government had sold Royal Mail cheaply were merely “froth” had been “demolished”.
“Increasingly it looks like the taxpayer has been left short-changed at a time when services are being cut and families are struggling,” Umunna said.
Labour’s Chuka Umunna MP says time has proven that the government “short changed” the taxpayer in selling off a majority of Royal Mail
“We know that Vince Cable considered, then rejected, the option of floating Royal Mail at a higher price which would have brought in more cash for taxpayers. He still has serious outstanding questions to answer on the price he could have received three months ago in respect of what increasingly looks like a botched privatisation.”
The government said following last year’s IPO that it could not have sold Royal Mail for a higher price for fear of putting off the kind of long-term institutional investors that can give the company stability.
Sell price
Analysts have been quoted in the UK press this week suggesting that investing in Royal Mail is “no longer compelling” with the share price so high, despite a “spectacular” performance following the IPO.
Investment bank Cantor Fitgerald has set a sell price at 500p per share. Analyst Robin Byde issued an advisory note stating that despite making good progress in its restructuring, and enjoying strong brands in the market place, Royal Mail faces further challenges.
“Core letter volumes continue to decline sharply and many other operators are fighting for share in the packets and parcels market,” he said in the note.
“Costs are being contained and productivity is rising, but Royal Mail still needs to invest heavily in automation to lift service quality, efficiency and margins.”
Goldman Sachs, which advised the government on its valuation of Royal Mail ahead of the IPO, supporting the 330p valuation at the time, changed its tune following the IPO to recommend a 610p price target for investors.
The investment bank was taken to task by MPs last year for its valuation, with Parliament’s Business, Innovation and Skills Committee chairman, Adrian Bailey, stating that there were “further questions that need to be asked” about the company’s advice to the UK government.
