Who am I to write about the Royal Mail Group, when one of my splendid colleagues, Gert Zonneveld, proved to be virtually the only analyst to flag up the fact that the Royal Mail IPO would prove to be a terrific ‘Arfur Daley’ and was probably undervalued and therefore should be aggressively subscribed for. Well I think I can comment from non-valuation perspective
Many of you will recall that the shares were issued at 330p in October of last year and went to a 40% premium on the first day, hitting an intraday high of 615p in December 2013. There were howls of anguish with opposition politicians calling for Vince Cable’s and Michael Fallon’s head on a charger, with Chuka Umunna leading the forlorn charge. Cries of a £1billion had been conned out of the taxpayer – Resign etc etc!
I attended the BIS select hearing chaired by a nervous Adrian Bailey MP and his committee, when Lazard, Goldman and UBS were in the dock so as to speak. All were duly castigated for under-valuing this offer for sale, with representatives from JP Morgan and Deutsche Bank smugly pouring salt in to the wound. Clearly the so-called offending investment banks failed to speak up for themselves in a virile manner and it was very obvious to the onlooker that the PR men had been at work, rather unconvincingly – the rhetoric was pathetic and clearly not investment banking speak!
Though this issue was probably under-priced by 50 pence, history may well be kind to Lazard, UBS, Goldman, ministers and to Moya Greene, the CEO in the years to come. First and foremost the issue had to be a resounding success with what was to follow – tranches of Lloyds Bank, Williams & Glyns, TSB and RBS in the future. This IPO could not afford to falter! It had to be a knock-out blow for investors. Also it should not be forgotten that the taxpayer still owns circa 40%!
To be fair there were huge imponderables – Union issues, potentially ferocious competition from the likes of UPS, TNT, Deutsche Post, FedEx and UK Mail – all looking to cherry pick RMG’s best contracts. Revenue from letters had to drop with the advent of emails. I definitely did not buy market conditions as they were not too bad at the time. the fact that RMG had scope to raise their tariff was questionable in the wake of such fierce competition. Some of these imponderables have manifested themselves in today’s results.
Even though Messrs Fallon & Cable were incandescent with rage over Panmure’s valuation, which was based on existing data; it was spot on by Gert Zonneveld! There was always going to be cumuli nimbus clouds of uncertainty hanging over this business model, though RMG property sales in the future could prove to be a cosy cushion. The following comments are not Panmure’s view, but mine. I think this IPO was very cleverly priced – mission accomplished! Whether RMG’S business is acquired in the future, who knows? If it is the taxpayer should do well by way of its remaining 40% stake.