Royal Mail value soars by £1.3bn

Herald Series: Royal Mail is making its stock market debut Royal Mail is making its stock market debut

Royal Mail soared in value by more than £1 billion today as shares began trading on the stock market for the first time.

Nearly 700,000 small investors saw their stakes increase by £290 as the price rose by up to 39% while some post workers would have accumulated more than £1,000 in paper profits during the course of their morning deliveries.

But amid the flotation fever in the City, ministers were facing accusations that financiers have been allowed to profit from public assets being sold off cheaply.

Shares representing a 52.2% stake in Royal Mail had been snapped up at a price of 330p by institutional investors, who were allocated two-thirds of the stock, and ordinary members of the public - known as retail investors - given a third.

Stockbrokers were overwhelmed with interest as conditional dealing began, with more than 100 million shares traded in the first hour, sending the price up to an early-morning high of 459.2p.

The level valued Royal Mail at nearly £1.3 billion more than the £3.3 billion implied by the offer price. It later settled back to around 440p but this was still a third higher than what investors had paid for the stock.

Business Secretary Vince Cable dismissed claims it had been undervalued, telling BBC Radio 4's Today programme the sharp price rise was no more than "froth and speculation" and insisting the sale was a good deal.

He said long-term, stable investors had picked up the bulk of shares. But Labour's Chuka Umunna tweeted that ministers had "a lot of explaining to do".

At the peak price, retail investors who each paid around £750 for a tranche of 227 shares would have been sitting on paper profits of more than £290.

Many will not be able to sell until full trading in the shares begins next Tuesday but those who bought through brokers were already able to cash in, with bundles of 227 shares being sold off throughout the morning.

Meanwhile, 150,000 Royal Mail employees will have seen the value of their free stake, initially priced at around £2,200, rise to more than £3,000 - though they cannot sell for three years.

A further 15,000 who took part in the offer to buy shares will have seen total paper profits of more than £1,000.

Stockbroker Hargreaves Lansdown said the offer had created unprecedented interest, leaving its website struggling to cope.

Richard Hunter, head of equities, said: "There's been a fair amount of selling interest. Some people have decided to bank their profits. Having said that, the stability of the price suggests those sales are being mopped up as well."

Joe Rundle, head of trading at ETX Capital, said it was a "dazzling stock market debut". But he said concerns such as the threat of industrial action, a lack of adequate capital and unclear growth strategy, could weigh down the price in future.

A demonstration against the sell-off was being held outside the London stock exchange today, with protesters dressed as robbers.

Billy Hayes, general secretary of the Communication Workers Union, described it as "a tragedy" and told Today that despite the free shares for employees, a ballot next week was likely to back industrial action.

"Vince Cable, one of the cleverest men in British politics, has made one of the stupidest decisions he is ever likely to make as a politician," he said.

Mr Hayes said there would be no celebrations over the share surge at delivery offices around the country, amid fears that privatisation would lead to reduced services and higher prices for the consumer.

Taxpayers have been left with a 37.8% stake in the company, though this could be reduced to 30% depending on a so-called "over-allotment" option which is dependent on price performance following the flotation.

Some retail investors were left disappointed as the share allocation was announced yesterday, as those who applied for more than £10,000 worth got nothing.

Prime Minister David Cameron brushed off concerns that Royal Mail had been undervalued when he was asked about the privatisation during a visit to Bombardier aircraft factory in Belfast.

He said: "First of all we should celebrate the success of the privatisation of this business, it's not only good for its employees, who have become shareholders, it's not only good for the shareholders who now own this company, it's good for the company itself.

"Royal Mail is in a very competitive market, it can now access capital and access private sector management techniques."

Mr Cameron said the privatisation was good for all the economy. He added: "As for price let's see what happens in the days and weeks ahead. What really matters is this has got off to a very good start."

Labour leader Ed Miliband said: "It's a fire sale of a great institution at a knock-down price. It has been undervalued for tax payers and undervalued for customers.

"Its a dogmatic privatisation by this government and they have made it even worse by undervaluing it.

"The Government are doing it for ideology and it's not in the best interests of this country."

TUC general secretary Frances O'Grady said: " Privatising Royal Mail has become little different from selling five pound notes for four quid. No-one can be blamed for wanting a share of that, but let's not forget that this has taken something that belonged to all of us and given a large slice away for free to those who could afford an entry ticket.

"And everyone knows that in the long run the postal service will get worse, just as other privatised industries have ended up abusing markets and ripping off consumers."

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