Royal Mail shares debut at 450p

Royal Mail shares have opened at 450p (from the 330p sale price) as grey market trading begins this morning. The 36 per cent increase means that the Royal Mail is large enough to join the FTSE 100, with a market cap of over £3.1m.

About 690,000 would-be investors are to receive a share allocation worth around £749.10p. The 40,000 individuals who applied for in excess of £10,000 worth of shares will receive no stock at all, after business secretary Vince Cable decided last night that they should be excluded from the market.

Cable, speaking on the BBC Radio 4 Today programme, said there was "an enormous amount of froth and speculation after an IPO of this kind and significance" as he defended the 330p offer price, after shares rose by 36 per cent when trading began this morning.

The government has been criticised for a cheap sell-off of Royal Mail, but Cable has maintained the importance of good, long-term investors for the state-owned company.

With over 700,000 applications, shares have been oversubscribed by 20 times. 67 per cent of investors vying for a look in were institutional with the other 33 per cent retail. Spread betting grey market listings for the company expected a strong performance when it floated. Joe Rundle, head of Trading at ETX Capital comments:

On the first day of trade for RMG, it’s likely we will see some selling pressure after the stellar open which could see the UK government under some pressure to defend the price it was sold off. But, UK government will support their approach on how the company was floated on the market, hailing it as a success –indeed, it was cleverly engineered in such a manner before next year’s elections—and the government will claim that institutions and retail investors all had a fair opportunity to subscribe.

Despite the speed with which the Royal Mail was floated, there is still the threat of a strike from staff with stock prices likely to be weighed down by an unclear strategy for growth and insufficient capital. Rundle adds, "management and MPs will have to continue talking up RMG in the run up to the UK elections next year, with the market now looking out for details on how this company will adapt, expand and deliver rewards to its investors."