Royal Mail, dividend not so attractive now

One of the major attractions of buying Royal Mail shares was the prospect of a 6-7% dividend yield thanks to the Government pricing the company to sell. This would have been nice for the private investor if you could have got more than the 227 share limit, £750 worth at IPO, but once the issue was scaled back it became less attractive as a hold. I made the point in a post a few days ago that because of the small 227 share limit it might not be worth holding on to them given the 30-40% rise in price since then. If you want more, at a less attractive dividend yield, you now have to pay for it. Some in the city seem to feel the same way.

Investors who bought Royal Mail shares for the income should sell their stakes, experts say. Before trading began on Friday, the appeal of the shares had largely been in the likely dividend stream, which seemed attractive at the price. But with the shares having soared in value, the income now looks less appealing by comparison with the instant capital gain available if you sell.

With the shares priced at 475p at the end of trading yesterday the yield works out at about 4.3pc, net of basic-rate tax, which is deducted at source. Before trading began on Friday the yield stood at 6.1pc, representing 20p a share. The yield is now on a par with income stalwarts such as Tesco or Vodafone – which, unlike Royal Mail, do not face a union battle and massive restructuring.  

http://www.telegraph.co.uk/finance/personalfinance/investing/10378410/Royal-Mail-sell-now-investors-urged-as-yield-falls-from-6.1pc-to-4.3pc.html

So, the euphoria around the Royal Mail IPO is beginning to wear off and as the price rises it is becoming less attractive as the market will inevitably focus on the issues facing the company going forward. There is also the question of whether a 4% dividend yield is attractive now when compared with other dividend payers, chances are that the risks are much higher going forward with Royal Mail. For the institutions however, a 3-4% dividend yield will still be attractive so I would expect them to continue to hoover up Royal Mail shares as the small investor sells off  their 227 shares. As an exercise in widening share ownership, if this was the Government's intention, it has largely failed. Most of the shares will end up, eventually, with institutions.

Royal Mail, damp squib for private investors?

So, here we are on Day 1 of the grey market trading for Royal Mail shares and as widely predicted the share price is showing a healthy premium already at around 445p. However, as the IPO was so heavily oversubscribed the Government was forced into deciding how many shares the institutions and private investors would get. Both will no doubt be disappointed.

For the private retail investor, an allocation of just 227 shares will go to anyone who asked for £10,000 or less. Over £10,000 you get nothing. Institutions are getting 67% of the issue, with priority apparently being given to pension funds and those with a long term intent.

That's all very well, but for most small investors, especially those that wanted more than the minimum, an allocation of just 227 shares may seem hardly worth keeping. The potential dividend on this might be nice and beats cash on deposit, but it's hardly likely to be a holding factor especially as the shares are currently up around 33%. You might as well take that couple of hundred pounds worth of immediate profit as it represents 5-6 years of potential dividend payments. The point is, if every small investor who had asked for say £5000 or under had got the full allocation, chances are they might be inclined to keep them as that's a chunky dividend worth holding on to. Adding to your 227 shares now will be 30%+ more expensive, thus the dividend yield is lower. Of course, you could wait and hope the price sells off after the initial euphoria, which is a possibility.

All of this would have meant that the institutions got less, but there again if they are serious about wanting the shares they would then have to go into the market and buy them. Chances are that many of the smaller serious investors will simply offload their 227 shares as not really worth keeping and it will be the institutions that hoover these up over the weeks ahead.

Retail trading doesn't begin until next week. Holders in ISA's cannot buy until the official start date of the 15th, because until then they are not classed as an ISA investment. There might be quite a lot of volatility between now and then and it will be interesting to see if the current price holds especially if the small investor decides to get out quick and just bank any profit as quickly as possible once official trading starts.

Royal Mail IPO looks like it will be very popular

With the Royal Mail IPO less than a week away it looks like it will be well oversubscribed and purchases will be scaled back accordingly. Institutions have been looking to get in big time, they want £30 billion's worth.

Institutional investors have placed more than £30bn of orders for Royal Mail shares as the Government puts the finishing touches to the biggest UK privatisation for decades.

Sky News understands that firms from around the world have deluged the investment banks running the postal operator's sell-off on an unprecedented scale, with the initial public offering more than ten times oversubscribed.

Whitehall sources said that the £30bn figure excluded demand from members of the public, with a last-minute rush for shares expected throughout the course of Tuesday.

http://news.sky.com/story/1151723/royal-mail-city-demand-for-shares-tops-30bn

So, if you are small investor the chances are that if you want these long term for income then you may have to wait and hope for a pullback once trading starts as the chances are you won't get the full amount asked for. The Government have said that the retail investor will get their "fair share" when the allocations are finally announced. It's also possible that some institutional buyers will get none. Let's hope so. If the institutions are that desperate to buy they will start hoovering them up from day one.

What is interesting about the RM float is that in many respects it couldn't happen at a worse time for the markets with the US budget/debt talks ongoing. It might be one of the few big name shares still going up in price come next week if US politicians can't find common ground to do a deal. However, the fact that the institutions have asked for so much, even though they have done so with the full knowledge that it will be scaled back, suggests there is still an appetite for buying shares despite market fears of wider issues like a US default.

Poundland considers IPO in 2014

All the IPO talk at the moment may be about the Royal Mail's debut in the next week or so, but one small quite attractive company is looking at possibly doing the same next year. Poundland has been one of the High Street success stories of recent years and it may look to become a PLC next year.

Poundland, the biggest UK retailer of its kind, is reportedly weighing up whether or not to become a listed company before the mid-point of next year.

Sources "familiar with the situation" told Reuters that the group is considering an initial public offering (IPO) in the early part of 2014 following what it anticipates will be a strong Christmas trading period.

http://www.digitallook.com/news/21194788/Poundland_considering_IPO_next_year_sources_claim.html?&username=&ac=,

The growth of pound or 99p shops has been big business in the UK and has no doubt been helped by austerity, as people look for value for money. I've often wondered whether such a company would make a good investment though, especially if you are a long term investor? The key question here has to be one of inflation. Can pound shops survive long term the pressures that they would be under to consistently source decent products over the years in an inflationary money system?

Poundland as a private company appears to be well run and growing, making decent money, but had it come to market 50 years ago it would probably have had a different name because even back in the 60's a pound could go a long way. The further you go back the more you realise what inflation really means. A pound isn't what it used to be and while people do have a lot more of them these days as the average salary has gone up quite a lot over the years, so have prices. It does make you wonder whether the pound shops have a long term future or perhaps along the way they will have to change their name, Poundland may end up as FiverLand and then TennerLand? It would never have survived in Zimbabwe or Weimar Germany.

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.

Margaret Thatcher, the Big Bang and the hypocrisy of politics

Even in death it was probably inevitable that Margaret Thatcher would divide opinion in very black and white  terms. Much has been written and said in the last few days about her, a lot of it by people that look at the world in very black and white, what's right and what's wrong ways, very much like Mrs Thatcher herself use to do. They talk with a certainty that they are right while everybody else of course, is wrong. It makes life very difficult for those of us who tend to see the world in shades of gray, although I might argue with the same level of certainty that the world is exactly like that.

So, let's explore some of those shades of gray that exist around Margaret Thatcher's legacy and we can start off with the Big Bang that freed up the city and banks back in the 1980's. It has been written that Thatcher somewhat detested the old boy city network way of doing things and that by freeing up the markets she would effectively destroy that old way of doing things. This she undoubtedly did, but perhaps she didn't see some of the long term consequences that she was unleashing.

For average investors/traders like ourselves, this change was in many ways a good thing, in time it opened up the market to Mr and Mrs Average to get involved. We can trade and buy shares today with a few clicks on our keyboards via the internet if we so wish in a process far more easy than what went on before Big Bang. To some degree, the stock market was "democratised" and opened up to us ordinary folk. This was helped on by the privatisation of many nationalised industries, usually at a discount. In the UK, "Sid" was born to patronisingly describe the eager new shareholders to the market, many of which simply wanted the quick profits that could be had in the first few days after IPO, easy money, greed is good, a mantra of the 80's and beyond was born.

However, this old wrong way of doing things was also extended to the banks, Big Bang helped see the birth of the investment side of banking. Many of the old fashioned big building societies like the Halifax, were happy to jump on board to become banks, allowing them to take advantage of the new financial freedoms. It was a time of light touch regulation that was taken to the extremes of almost no touch in the years of Blair and Brown. Much has been written about the banking crisis post 2008, but one thing that stands out is how the banks and financial industry exploited this light touch/no touch approach for their own ends, much of which they did in criminal ways.

UK Budget update 3 - Countrywide IPO

Well, Countrywide the estate agent picked a good first day to float on the market, or perhaps they knew something?

"According to Bloomberg, Countrywide shares gained 47 to 397p after being priced on Tuesday at 350p, the top of the initial public offering range.

Dealers chased Countrywide higher amid hopes that the company – whose brands include Bairstow Eves, Churchills and Hamptons International – will benefit from an increase in the volume of house sales following the Budget."

http://www.telegraph.co.uk/finance/markets/marketreport/9944475/Countrywide-shares-brighten-up-a-grey-day-as-Budget-renews-optimism.html

Can you be sure of Esure?

It is often the sign of a bull market that you see more IPO's coming to the market. Yesterday was the final day for anyone interested in buying shares in Insurance company Esure to register their interest.

Insurance firm esure has set a price range of 240p to 310p per share ahead of its much-anticipated London initial public offering.

The mid-point values the company - founded and chaired by Peter Wood, one of Britain's wealthiest entrepreneurs - at £1.1bn.

The home and motor insurer said it would repay "all of esure's outstanding debt" with the £50m it hopes to raise from the sale of new shares.

http://news.sky.com/story/1061865/esure-sets-price-range-ahead-of-flotation

There is talk that the starting price will be around the 270p mark, which if true puts it on a dividend yield of around 6% and prospective P/E of around 10, lower than its market peers. The last big insurance company to float was Direct Line, which also offered a yield of around 6%. There were doubts about Direct Line, but since the IPO the share price has been a steady riser, although the bull run recently should have helped it. Chances are Esure could also be a steady performer, at least while markets are good, and the prospective yield does look good for income seekers at a time of low IR's for savings on cash.

IPO's though seem to be back in fashion, as we also have estate agent Countrywide coming to market this week as well.

Britain's biggest estate agent, Countrywide, is poised to sell its shares in an initial public offering on Wednesday at the highest possible price it had planned for, in a further sign that the UK housing market is gaining momentum.

The company is preparing to offer its shares at the top end of the range – 330p to 350p a share, up from an initial 260p-350p – two unnamed sources told Reuters.

http://www.guardian.co.uk/business/2013/mar/18/countrywide-flotation-optimism-housing-market

Not sure about that UK housing market momentum, but it's perhaps typical of an estate agent it wants the highest price possible at float, so not as attractive for income seekers as Esure.

Direct Line, are the Sid's back?

Back in the 1980's when privatization was all the rage for the Conservative Government, Sid was chosen as the campaign name of the imaginary ordinary bloke in the street who just might be interested in buying into the nationalised industries that were being sold off.  Millions joined in, often selling for a quick profit as they were priced to sell, BT, UK water, and British Gas to name but three (UK Water ad below).

Such IPO's, especially ones where the public are invited to buy are now rare.  Direct Line Insurance is the latest big IPO, which while not owned by the Government, is owned by RBS the bank saved by the taxpayer from going under back in 2008. In effect, the Government does still own 83% of  RBS and it wouldn't be around today if it wasn't for the taxpayer.