Governments are notoriously bad managers of commercial enterprises, so the sooner Royal Mail takes its bow into private enterprise the better. Provided the price tag is not too rich (between £2.5bn and £3bn), in terms of valuation this offer sale compares favourably with foreign equivalents – 8 times earnings compared to Deutsche Post’s 10.5 times earnings. The international competition out there, however, is becoming fiercer by the day, with the likes of FedEx, UPS, and Deutsche Post peddling their wares to considerable effect. In short, it’s good news that Royal Mail, which already has a solid client base, is being privatised quickly. It can then hope to compete globally.
Market conditions at the time of the sale will need to be positive, however, as there will be other attractive alternative flotations such as Merlin Entertainment and possibly TSB to consider. But we should perhaps accept that Royal Mail will itself become a takeover target for one of the larger operators. It’s just part of the rich tapestry of business life.
David Buik is market commentator at Panmure Gordon.