Royal Mail Float, is it a buy?

Royal Mail has announced details of its upcoming share offer, anyone interested has 12 days to decide whether to take part in this part sell off. Only partial sell off because the Government will keep 37% - 49.9% for itself, no doubt to sell at some future stage.

My initial reaction upon hearing that it was to be offered to the public for sale was why would anyone want to buy into a company that is in a declining market?  At least I thought their market must be in decline. This was based on who sends letters these days, other than junk mail and banks (especially if they are charging you £25 to £30 for it to tell you that you have gone overdrawn). I can't remember the last time I sent a letter, although having thought about it I think it was about 3-4 years ago. I don't use the Royal Mail for much at all, and it is RM that is being sold off, not the Post Office.

Still, Royal Mail is now profitable.

While the Royal Mail is now highly profitable, it is a recent turnaround and a tumultuous five years leading up to 2011, during which some 50,000 staff were laid off. Its pension fund, which was £8bn in the red three years ago, has now been shifted to taxpayers.

Behind the troubles is a steep decline in the amount of mail delivered to the UK's 29 million postal addresses. At its peak in 2005, the Royal Mail's daily postbag topped 84 million. This number has since fallen to around 58 million, thanks to the internet, email and mobile phones.

However, on the other hand and thanks to the internet, parcel delivery appears to be a growth business.

As the amount of letters sent in the UK has fallen, parcel deliveries have boomed alongside the take–off in online shopping, and now account for half of its business. The parcels and logistics industry is believed to be worth around £75bn in total, although Royal Mail will continue to face competition for its share from firms such as DHL.

http://www.telegraph.co.uk/finance/personalfinance/investing/10338554/Royal-Mail-privatisation-just-12-days-to-buy-into-float.html

Chances are that it will almost certainly be priced to sell, the range indicated being 260p to 330p. There is also talk of a 6-7% dividend yield, so I suspect it will be oversubscribed and the chances are that any IPO purchase could well be diluted as small investors won't get all the shares they want. There is also the little matter of the possibility of a postal strike to come as the postal workers union are going to ballot on industrial action over pay, pension changes and post-privatisation terms and conditions of work. So, even though the postal workers themselves will be offered shares and free as well, they may also vote to strike.

I suspect that as often is the case with many of these high profile IPO's, the share price will initially go up because it will be priced to sell, but once the dust settles the market may start to focus on whether its declining business areas are a real issue or not.