How this small company highlights the problem of valuing the Royal Mail float

One float that hasn't gripped the public imagination much has been that of Applied Graphene Materials, a company that floated on AIM on Wednesday.

Since its initial public offering (IPO) shares in the company have more than doubled. Launching at 155p, they have since risen above 380p during today's trade, before falling back a little.

The Wilton based company deals in the high-tech new material graphene, which is expected to revolutionise many aspects of our lives, with its light, strong and conductive properties.

But what's most interesting is that explosion in market capitalisation - from £26.2m to a number closer to £65m. It's an illustration of how difficult it is to get the pricing of an IPO right.

While there was a lot of attention on the various valuations that various banks pitched for the Royal Mail float - less has been given to the huge range between them, demonstrating how clueless we were to the true worth of the company.

It's just really hard to work out what something is worth until you have a market in it. Once you have people actually offering money for an item, expressing their willingness to pay, you can actually put a realistic value on something. Until then it's tricky.

As a result we see companies offering their shares more cheaply than what they guess they're worth. Do otherwise and you might end up like Facebook, with shares falling shortly after they begin trading. Or worse, you may not find enough buyers for your shares at all.

That's why many IPOs "pop" on their first day - rising sharply quickly in their first trading session. That Royal Mail shares did that should be no cause for alarm. The magnitude of the jump might be.

The point remains that before Royal Mail went to market no-one knew what it was worth - because we didn't know what people would be willing to pay for it.