Royal Mail flotation - looks good value
Predictably, there’s a lot of media hoopla circulating about the imminent Royal Mail flotation, but scant actual analysis about whether or not it will be at an attractive valuation.
ExpectingValue has shared his thoughts here: http://is.gd/ePo1l1
I’m just going to look at some numbers. Royal Mail has 1bn shares in issue (no new Ordinary Shares are to be issued under the Offer, according to note E.6), of which it will sell between 401m – 521.7m shares in the £2.60-£3.30 price range. The whole company post flotation will therefore be worth £3.3b, assuming that the upper price range applies.
Looking at the short prospectus (PDF: http://is.gd/EG5k2v), and sticking my fingers in the air, it has revenues of around £8.8b, and an EBITDA of around £700m. That puts them on a PSR of 0.38, and an price to EBITDA of 4.7. Looks cheap. As one analyst put it, “they’re priced to go”.
It is expected that they will yield 6.1% – 7.7% – way in excess of current market yields.
They’ll be a lot of political incentive to ensure that this flotation succeed.
Conclusion: stag ‘em
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42 comments
Now finishing the week at over the £5.00 mark, is it going to catch up PTO? Looks like plenty of interest still going on with the big bucks £2M+ going through today. Good business for day traders I should think too, with a nice narrow margin.
Please note the company of the year award is OPAY in over 200 countries & moving billions of $ around the globe without letters no doubt. I am definitely going to increase my holdings for the third time with this one. See the news information. In the meantime well done Royal Mail keep on trucking.
Cheers from lightningtiger
Correction should be 4:29pm
487.5 nearly there 14:29pm
It is a new day with another high & dropping back a bit currently. There is the a possibility of it going to £5.00 today because it is called "Royal". It sounds good for people so people are prepared to pay more for it. A logo for a company is very important. Look at apple computers as an example, it has a good appeal to it.
My view long term is still a buy but with a sensible stop loss. Eventually everything is going to crash because of the compound interest of debt in the states is unsustainable it has to happen, it is only a matter of when. Got my eye on the gold price. Cheers from Lightningtiger.
Lightingtiger - that max profit would be from a friday sale. (the friday 8.59pm post of mine gives that away no)
No please enlighten me. I thought 4:30pm the UK market closed, end of story. Is this another rule that is broken? It is not the first time I have seen it either. Is it trades from other countries or what? Surely when the bell goes in the US, business ceases for the day. I have enquired from my broker why a few months back but could not get a satisfactory answer. Perhaps you can enlighten me on this please. I also notice Fangourne stating maximum profit £250. Although this is perhaps personal to Fangourne , profit will vary with the timing of the trade. Mine was for £285.25 which I was happy with ..Later today the trade would have been a bit more of course.
Further help from my club is right now helping with the huge storm in India with food and shelter for the people over there and i am a small part in that. You will see on my profile,333. a link to watch what is happening round the world. I put 333 there because I have in the last 3 months I have had conformation of 3 miracles cured from cancer. This is the day that God has made that we might rejoice in it. I give him all the praise. The locations are Hampshire, Berkshire and Australia.
I can remember years ago, when I was in the insurance business a college of mine saying "It is not just making money in the business, it's what you do with it that counts. I was also doing business with the postal workers as well because they had a deduction from salary facility for them. I still think these shares have further to go before they settle down, but long term not for me. Cheers from Lightningtiger.
Lightningtiger, dont you understand late reporting of trades?
A second bight of the cherry today with Hargreaves sold my 227 shares @ 460.925 = £285.25 profit, so free bubbly & free meal out as well. I noticed a lot of trades for just over £1000 today which suggests some people have sold earlier & bought back in again. Also another sell deal today @ 16:56 for £8,131,307.44 Is this another deal outside the UK I wonder? Still have not seen anything confirming any dividend payment either. Totally agree it is not worth hanging on for long term. Just seen on my favorite club (can be seen on my profile) today a father working 15 hours a day for $10 and the children have not got enough to eat, so the needs were met from the club. So some of my profits can help out a bit more & be put to good use. Cheers from Lightningtiger.
Mark,
How's it an election bribe? It's a paltry 227 shares, Max profit £250. And you think this is a bribe? In addition it seems many were unable to even secure the £250 bribe you talk about as they couldn't sell for love nor money..Hargreaves down ALL day, both internet and phone apparently from what I hear. Made the Telegraph.
I bet our esteemed foreigh friends in kuwait,Singapore, Abu Dhabi hd no such rpoblems dealing.
http://www.telegraph.co.uk/finance/personalfinance/investing/10371756/Hargreaves-Lansdowns-systems-buckle-under-Royal-Mail-share-trading.html
Foreign wealth funds , such as Abu Dhabi, Kuwait and Singapore, as well as Norway were allocated IN FULL to the tune of 15 million shares each in some instances. Landsdowne, a hedge fund, allocated in FULL. Any private investor asking for more than a paltry £10,000 worth got NOTHING. Aren't these privatisations meant to encourage wider share ownership as they were in Thatcher's day. Now they just seem like an opportunity for the rich(especially foreigners) to get richer. What of the upcoming Lloyds and RBS privatisations - who's going to bother? I certainly wont, even though I am already a much diminished shareholder in both of those.
If you think £250 is a bribe then you're extremely misguided.
Privatisations should be for UK investors first and foremost. If the sovereign wealth funds of Singapore,Kuwait or wherever else want stock then they should buy in the open market in my opinion. If you suggest that such foreign buyers were needed to guarantee the "issue" got away successful then I'd wager it could've been done through greater involvement of UK financial institutions - eg DJPreston was clear many UK financial institutions got nothing. How does that work when foreigners get allocated in full???
I think there is a law for the rich and a law for the poor in this game. On my brokers last few trades today, after the market closed a deal @ 16:44 sell 500,000 Royal Mail @ 440.87 = a cool £2,204,330.00 (The last two noughts are pence by the way). Someone has made a good deal of serious money.As for me after 3 failed attempts to deal with my puny 227 shares on line with the broadband cutting out as well, 5 attempts by phone busy, busy,busy, I was unsuccessful in selling them, so no free bubbly yet. If we try and deal we only get sorry market closed. I still can't see any guarantee of the dividend declared anywhere either. Cheers from Lightningtiger.
I suspect the people who applied for more than 10,000 shares might feel a little taken for granted.
The government is buying votes, dishing out a couple of hundred pounds profit to people applying for
less shares, what proportion of those applying for more that 10k aren't going to vote conservative anyway ?
lets say it's 20%, of that 20% what proportion would change it's mind based on making money from royal mail privatisation ? a handful I would guess.
So you buy lots of votes from undecides at the bottom, keep your mates in the city happy with the majority of the allocation, don't worry too much about those wanting more, they're probably in the bag anyway !
Don't worry too much, there will be more popular sales to come, Uranium enrichment company next,
K
I seriously doubt whether a couple of hundred quid quick profit is going to make much difference in terms of buying votes. Had they wanted to buy votes they could have simply sold none to institutions.
There is arguably a case for saying that the private retail investor should have got most if not all of the shares. Those that were serious about holding for the dividend would then do so. By only giving 227 shares each to those who requested under £10,000 and nothing to anyone above, they are more likely to encourage those that got them to sell quickly because is it really worth holding such a small amount even if the divi is 6%? For the first time share buyer who doesn't have much in the way of savings they may hang on to their 750 quids worth. For the more experienced investor however, getting 30%, around £250 profit on a 227 share holding in a day makes more sense than holding such a small amount for a possible £40 a year divi on a company that may face some headwinds once the dust settles.
Apparently a large chunk of RMG has gone to Foreign institutions...the wealth funds of Kuwait, Abu Dhabi,Singapore,Norway, as well as the likes of Landsdowne partners.
British investors should have been prioritised in my view. A lousy 227 shares whilst some foreign wealth funds hoover up 15+ million shares and get full allocations.
http://www.cnbc.com/id/101104878
According to that article, 33% has gone to retail investors, 10% to postal workers and 30% has been retained by HMG, meaning institutions were allocated 27% altogether. So, 43% in individual investor hands vs 27% institutional.
Not quite the picture painted earlier on this thread.
Wonder how that picture will look in a few days, when the stags have sold?
Yup, seems like an election bribe to me. Wholly misconceived.
Mark
Any thoughts on what will happen to the 25 billion that was put up and will now be returned as cash? Will this flood the market and bid up prices?
Actually, it isn't that straightforward as far as institutions go.
Many applying for their clients have go. zip, nada, nothing.
There's a lot of very p'd off institutions out there as well, trust me.
Royal Mail allocations...
zzz utter waste of time applying it seems, yet again
Utter waste of time - the Royal Mail flotation
"33pc of the offer has gone to retail - or small investors - with institutions taking the rest."
More than 93,000 applied for the £750 minimum.
The government says in total 270,000 applicants (or 37pc) will receive at least half of the shares applied for.
Around 5pc of applicant will get nothing.
Strike 330p/sh
Are the institutions affected by the £10,000 limit - of course not.
Great way to motivate "Sid"
Still, could be a blessing. Strike vote on 16th October - if that passes stock will go into a tailspin.
Fair point. Not forgetting the US debt ceiling on the 17th , if things get pushed to the wire rather than kicked down the road.
Where on earth can institutions and private investors get the sort of yield they'd have had with the Royal Mail, eh......? ;-)
I hear there are a couple of dodgy Oilies paying close to(Shell) or higher (Soco)
Far too sensible a couple of choices -
Got my 227 shares, sold at 447p first thing as soon as dealing opened. That's the bubbly taken care of for the day. :)
Not sure how "trying Stockopedia" will get you "an extra few %" but each to their own.
The guarantee is a desire factor that makes you want to buy. A guaranteed dividend looks good even too good to be true perhaps at over 7% with Royal Mail. The point I am making is that the battery is only worth the lower price. If you want the guarantee you pay extra for it. Royal Mail are giving over 7%. Certainly when you compare bank/building society interest at around 1%-1.5% with a 7% dividend of course people will go for it. The proof is it has been oversubscribed and this huge dividend is extremely attractive. The thing that remains is how long will it be paid out for? £33million a year compounded at over 7% per year compound interest is in this current climate is unsustainable unless the company can afford to do it. It does not stack up to me. Hopefully most of us running our portfolios are able to cash out 7% a year or more if we want to, but only if the portfolio is running at way over that figure constantly sustains it. This is why I am trying Stockopedia, to get an extra few %. I noticed THAL & CLIN in my portfolio are currently up 6.97% & 4.35% today. Cheers from Lightningtiger
Looks to me another Last minute. com scenario to me all over again. Half a loaf is better than none. Stag them & move on. Plenty more fish in the sea. At 7x oversubscribed it should help push the price up to start with. I still will be looking for that £133million dividend that is guaranteed. This could be set purposely high to make it a success. Good selling ploy. Dividends are not guaranteed until they are declared. The best I could find is 7.84% paid last Monday & having to wait 6 months for the for the other half of it. This was better than a cash ISA for my wife who is cautious. I spent a lot of time researching for this. Please note no letter with a cheque but electronic money transfer. One less letter to send. A little story with guarantees was when I bought a battery for the car. This came with a choice of 1, 3, or 5year guarantee. The very next day in pouring rain at night I braked & everything went dead. I took the battery back to the garage the next day who offered to replace it. I enquired where the manufacturer was & went to see them because I wanted to know why a brand new battery had failed. They told me sometimes an air bubble gets in the lead joining the cells together & proceeded to apply heat lamps & take the top off, and there it was the lead link had blown just like a fuse. He fitted a new link and tested the battery which produced a huge spark back to life again. I enquired about the guarantees and was told we make all the batteries the same. They get different labels put on but they are all the same. We simply charge more money for the 3year guarantee and again more for the 5 year guarantee to cover any that fail. So I think they have purposely set the dividend high to make Royal Mail a success & do not forget we will all pay more for the word Royal. Cheers from Lightningtiger
Quite what manufacturer warranties have to do with the Royal Mail IPO I will never know.
However looks like most larger investors will miss out completely:
http://www.bbc.co.uk/news/business-24470086
To an extent that explains why, as I also said on Today, the government has decided that well-heeled retail investors who have applied for more than £10,000 worth of shares will get none.
And anyone who subscribed for the minimum entitlement of £750 will receive 100% of what they want.
In between those levels of £750 and £10,000, investors will receive a proportion of what they would like.
As others have said priced to put a smile on lots of PIs faces on first day of trading. Priced like there is a general election next year. Priced so that when HMG wants to dump their big bank holdings there are plenty of punters willing to pick them up too.
Reminds me of the old buzby days. No doubt lots of scaling back so impossible to make more than a few quid for a nice night out but why not stag em low risk and no tax if done in ISA spread across family members.
Log
20% of £825 is still £165 (£140 ish after costs) you greedy sod ;-)
B U G G E R
Where's the option for - I don't want 250 shares only so just give me all my initial stake back chaars v much
It's been seven times oversubscribed so unlikely private investors would have got that many anyway.
There is an article in The Times this morning heaaded "Vince Cable selling Royal mail on the cheap" which says "Many small investors....will probably be alloted £750 each at most". I think that there will be a lot of upset small investors if the allocation is so small, particularly those that may have liquidated other holdings to free up cash to invest.
Vince Cable has been called to give evidence to the Business Select Committee today and so it will be interesting to hear what he has to say. Of course, the government runs the risk of accusations that it has given preference to their "mates" in the City at the expense of small investors if such a small individual allocation is given.
News is that the institutions have put in for £30 billion worth of shares. That's almost 10 times what the opening price market cap was likely to be. The institutions know it will be scaled back so they obviously went overboard. Word is the retail investor will get their "fair share", whatever that means.
http://news.sky.com/story/1151723/royal-mail-city-demand-for-shares-tops-30bn
Thank you Tournesol for bringing it to my attention re advertising. I can only assume it is my club & not one of my brokers mentioned. But having said that there is no report on my blog 9 about it. I have tried to edit them out without any success. We all make mistakes.Please forgive me. It was done in good faith to help people. Can someone help me to sort it out. This sight is still a learning curve for me. After spending time with this Stocopedia site for the last few days and looking at the %age gains today Globo comes up at 8% but no mention of Clingen ,one of my holdings +11% today. But on another hit list of mine up comes GWP at + 50.5% today another breakthrough in clinical trials with sativex (hope this is OK to mention this.) GWP seems to have all the dots green on the Stockopedia screen. This emphasises a good illustration of what a company is worth in one day 42% more. Is it too late for this one? It certainly has good potential in my book.With Royal Mail now coming closer it looks as though it will be oversubscribed and the big institutions applying for millions of shares on the antissipation of applications being scaled back. I hope it will not be like Last minuite dot com. with us being left with a mear handful of shares left.I will be interested in seeing the Stockopedia screen of Royal Mail in due course. Cheers from Lightningtiger
From Hargreaves Lansdown minimum investment is £750 and not £1000 as I thought and not number of shares. See the sight for further details. I have since put BLUR on my hit list and this for me is going to take priority, It is certainly living up to its name, and lets not forget CAMB in the car market, looks good to me!
Good hunting from Lightningtiger & thanks to the 700 club who has the secret to success with finance@http://www.cbn.com/700club/
Am i right in thinking if just 5M investors go for it each will only pick up 100 shares.?
On that basis most here can now stop dreaming.
Trying to read all the prospectus is gobbling up too much of my time BUT in for nothing regards costs, no stamp duty helps & deals in round £1000s so I am aware of. So a profit is not a profit until it is made. I would expect the bid/offer spread to be minimal because of sheer volume so at least 2 savings there, although small. Still think it will be over subscribed. If it does this should help to drive the price up .I agree on the parcel side but still not got the same potential as ASOS selling to a global market. US debt is a time bomb waiting to happen the US people are rightly getting concerned with it. You cannot keep on increasing debt. Anyway it goes on my 52 weeks High hit list for now. It has taken me a long time to figure out where it was as it is only my4th day of using Stockopedia. At least I have got a good hit list now to work on, must add BLUR to it if it fits Cheers now Lightningtiger & thanks to the 700 club
IG Index this morning is making a spread of 358.5p/368.5p! Decent profit even if issued at 330p but not sure how many we will get!
Enough to cover postage for the forms? ;-)
"Why do we need letters in the future for?"
too true, although I still seem to get a lot of post, and my local authority asks if I want my name and address to be sold when I register to vote, so some people are willing to pay for names/addresses and then pay to send me stuff. you are way more likely to look at an advert that falls on your mat than a random email, and there are laws against spam, no such laws against sending post,
(and there are times that a card, has to be a card, not an email, birthdays, christmas etc)
BUT,
surely the biggest issue is the parcel side, if you buy things online they have to be delivered, this is clearly a growing market, the question then becomes can royal mail win enough of this business at a price that it can make a profit, so as to get sustained growth ?
cheers K
My Twitter feed today is suggesting a price at 300-330p (original range was 260p-330p), suggesting that the Govt is trying to get the best return for itself possible while still pricing it to go up short term. The Times online edition (subscription required but by a news search you can see the headline) suggests an opening day price that "may reach 450p". I don't subscribe so can't comment on the article or how they come to that conclusion. That's ambitious, but possible even in these markets I suppose. The one immediate danger is the overhang from the US budget and debt talks that will reach its decision point in the week after this float. Still, if it were to get to 450 on the first day, there's plenty of room for any sell off if the markets tank on a potential US debt default.
Looks like it will be well oversubscribed and chances are that the amount of shares you ask for will be scaled back.
6.1%-7.7% yield seems ludicrous to me when profits are tight around 3%-5%. My best dividend stock is running at 7.84% first payment 6 Oct 2013. This took me hours of sifting out on dividend investor.com, but once announced the company has to pay it out. However future dividends are not guaranteed as you know. My guess is that the yield will be purposely set high to encourage a possible over subscription (to make it look good) and that would initially tend to put the share price up in my book. A good marketing exercise which should work well. I expect an initial positive price rise and after the dust has settled the price will drop because there will be strong competition from E-Mails and other companies that will try and undercut the Royal Mail prices.I know there are rules for competing with Royal Mail but someone can always find a way round them.I remember taking mt car fore its MOT with a cracked windscreen running into the wiper arc.The remedy was simple, I cut an inch off the wiper blade so that the crack did not go into the wiper arc.I followed the rules and got the MOT! Wireless communication is on the up all the time. People are looking at ways to save money. "Stag em" seems good to me.I would be cautious after the IPO too. I cannot see that sort of yield being sustained.Things are changing.........remember records, tapes, cd;s and now micro chips on your key ring (probably from ARM Holdings) Why do we need letters in the future for? Time will tell Cheers from Lightningtiger & thanks to the 700 club.
"Why do we need letters in the future for?"
Indeed, but this is a declining market that RM are well aware of and so is the market, it's effectively priced in.
You also mention records, tapes, cd's, etc as examples of change and this did for companies like HMV (at least as a market quoted company), because of the online threat from the likes of Amazon, Ebay and home shopping in general. However, this is one of RM's growth markets as things bought on line need to be posted out to get from A to B. Parcel deliveries are growing and so is RM's business from this.
Going forward and once competition kicks in I'm not totally convinced of RM's business model and they do still have quite a lively union to deal with, but forget about letters as it is a declining service that is well known about. The question is whether RM can compensate for it by growing in other ways.
Thanks, Mark. I'm interested in Royal Mail -- like Peter Lynch said, "Whatever the queen is selling, buy it" -- but I've seen a lot of enthusiasm for the shares in the UK financial media, which gives me pause. I'd be much more interested if there was more investor caution ahead of the IPO. (I could be missing something being across the pond, of course!)
I wonder if the RM employees will look to sell their shares (10% of the business, I think) and cash out fairly quickly after the IPO, thus providing a better buying opportunity later on. What do you think?
The yield is intriguing, I agree, but seems reasonable given the lack of growth potential. A 4-5x EV/EBITDA multiple also seems reasonable at first glance -- seems about the going rate for firms operating in industries with secular headwinds.
Best,
Todd
when will the price be known ? Do you have to apply for shares without knowing what the price is going to be ?
K