Could Buying Shares in Newly-floated Royal Mail Be a Good Investment?

At the start of trading on the morning of 15th October, Royal Mail will no longer be publicly-owned, falling into the hands of private shareholders for the first time. The flotation of the delivery company on the stock market seems like a logical move, especially for the government who seem keen to try and raise much-needed funds in order to reduce the UK’s fiscal debt. 

Following in the footsteps of British Gas and BT, many with Royal Mail and in the government hope that Royal Mail’s transition from public to private ownership is a success. The early signs are encouraging for those who’ve pre-bought their shares as the price managed to soar above the 400p mark on Friday, but there are concerns over whether they can perform on the markets long-term.

Taking stock

In the past few years, like a lot of their more commercial rivals, Royal Mail had achieved significant success on the back of the boom in online retail. This trend has seen the demand for parcel deliveries grow, meaning a sizeable source of revenue for them and their rivals. That, coupled with a profit of £403m for the year ending March 31 may make buying into the company seem worth it.

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On the other hand, the most significant part of the business – letter delivery – has taken a hit. As many opt to send emails for things like job applications and correspondence with customer service, this has seen the demand for people wanting to send a letter fall. As long as this continues to be the case, there may be an element of risk involved in buying shares in Royal Mail.

Early promise

Despite any misgivings anyone may have over buying into Royal Mail, it seems that the initial price range determined by the government of between 260p and 330p may be a little on the low side. This could make buying shares as soon as the flotation happens tomorrow morning an attractive proposition.

Joshua Raymond, chief marketing strategist at – group cityindex.co.uk has sent through this upbeat reaction to the Royal Mail latest:

“Whether or not the government manages to sell at the top of its guidance range remains a bit of a lottery considering the Royal Mail is no ordinary company, it’s a British Institution with politics at play and the public has a chance to invest. Nevertheless, the early signs thus far are encouraging with a day to go”, he said.

Is the future bright for investors?

Royal Mail shares have already jumped up 38% on the first day. According to a recent comment  on the telegraph from Premier Asset Management Chris White, he stated “Initially fund managers were sceptical about Royal Mail but I now think there’s a strong case for holding the shares for the next two or three years.

“There should be growth in its sales from deliveries of online shopping while the potential £500m windfall from selling off surplus property offers investors that all-important buffer of safety.”

It is a good idea to bank some gains given the prospect of strike action on the horizon. Long term the investment looks good, but the share price could be very volatile over the next two years.

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