ON ITS first day as a listed company in February, shares in AO.com rose by 33 per cent. Three weeks later, Poundland followed suit; jumping 23 per cent on its debut and making millionaires of several of its senior managers.
Other players in London’s recent initial public offering (IPO) boom haven’t fared so well; Just Retirement shares slumped five per cent on day one and are now worth almost 90p less than their listing price – albeit amid a flurry of external factors that have sent annuities providers south.
But that’s how markets work. After a lean few years for investors, the recent flurry means that when they see something they like they pile in, and vice versa.
What they saw in Royal Mail five months ago was a company with strong leadership that had been consistently growing profits (from £12m in the second half of 2011 to £144m a year later) and upping its presence in the lucrative parcels delivery market.
The business case made sense; Royal Mail dominates the UK’s letter and small parcel deliveries, and was handed much more freedom to raise prices following Ofcom reforms in 2012 – a point it proved yesterday when first class stamps jumped 2p to 62p and second class by 3p to 53p. It’s also managed to avoid expensive strike action, and slashed outgoings further this month when it said it would cut a net 1,300 management jobs – a move it says will lead to annual cost savings of £50m.
Five months on, analysts are split on the shares’ value. Early buyers (and subsequent sellers) have made huge profits on their investments, but there’s little to suggest that those who’ve stuck around don’t have a decent, long-term income stock on their books.
And the government certainly isn’t alone in pricing a stock to go.
Though confidence seems to be returning to the IPO market, bookbuilders are still being cautious – and Royal Mail got away before this year’s boom even started. Dubai property firm Damac priced right at the bottom of its expected range in December, while Guy Hands’ Infinis – which came to market just a few weeks after Royal Mail – listed at 260p, well below its potential top price of 310p.
The former is now well above its debut price, while the latter is below; investors have assessed the stock and acted accordingly.
They’ve done the same, and will continue to do so, with Royal Mail.
What the government and the auditors say can, and should, have little effect now.