Royal Mail update

An interesting follow up to the recent Royal Mail article suggesting a significant undervaluation of the distinctly British institution. It is important to note that simply because the company’s market value has increased on its first day of public trading, that does not mean that it was inherently undervalued. An example of this would be Facebook, which after a sharp initial increase in value, suffered a major plunge and has only recently recovered to reach its IPO (initial public offering ) value.

“Private investors who bought their shares directly from the government will have to wait until at least Tuesday if they want to sell. About 690,000 people were granted 227 Royal Mail shares worth £749.10 (at the 330p float price) following overwhelming public demand for the shares. The public applied for more than seven times the number of shares available to them, which meant nearly everyone did not get as many shares as they had asked for.

More than 36,000 people who applied for more than £10,000 worth of shares were prevented from buying any at all. About 40 people applied for shares worth £1m or more.

Cable said the government told the "very big wealthy investors … you wanted a big chuck, we can't give it to you".

City investors, hedge funds and pension funds applied for more than 20 times the number of shares available to them. More than 800 City investors applied for shares, with 500 being left empty-handed.

Sources said 90% of the shares reserved for the City went to "responsible institutional investors" such as pension funds. Investors include Threadneedle, Fidelity, Blackrock and Standard Life.

However, the remaining 10% of shares have been granted to "other investors", including hedge funds. Cable had said the government would prevent the shares from going to "spivs and speculators".

It is understood that about 20% of the shares available have gone to sovereign wealth funds – including those of Kuwait, Norway and Singapore – and other foreign funds. Royal Mail's 150,000 employees collected 10% of the shares free of charge, worth about £2,200 each at the flotation price and now worth £2,900. Employees were also allowed to buy a further £10,000 worth, but are not allowed to sell for three years.

Hayes said the share price rise would not make "one scintilla of difference" to employees' widely expected intention to vote for strike action on Wednesday. Days of nationwide industrial action could start as soon as 23 October.”