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.