Royal Mail shares soar to £4.90: Price is now 50% higher than at sell-off renewing claims it was undervalued

  • More than 700,000 people applied for shares in controversial privatisation
  • Shares sold by government at £3.30 leap to £4.90 on start of full trading
  • Anyone with minimum £750 stake has made a paper profit of £360
  • Firm now valued at £4.9billion up from £3.3billion estimated by ministers

By Matt Chorley, Mailonline Political Editor

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Royal Mail delivered huge profits for lucky investors who secured a stake in the firm today as shares soared to 50 per cent higher than the government sold them.

As full trading began on the London Stock Exchange, shares peaked at £4.90.7 before closing at £4.89 – well above the £3.30 price tag set by ministers last week.

It means the 700,000 members of the public who gained the minimum stake of £750 have made paper profits of more than £360.

Surge: The price of shares in the Royal Mail has soared since the government sold off more than half the firm at £3.30 last week

Surge: The price of shares in the Royal Mail has soared since the government sold off more than half the firm at £3.30 last week

 

The surge in shares in the 378-year-old company will renew the controversy about whether the government dramatically undervalued the company.

With shares trading at up to £4.90 Royal Mail is now valued at £4.9billion, well above the £3.3billion level set only last week.

While shares have been traded informally since Friday when conditional trading began, today was the first day of unconditional dealing in Royal Mail stock.

Business Secretary Vince Cable last week played down suggestions the firm was undervlaued as 'froth'.

Today Royal Mail chief executive Moya Greene claimed Mr Cable had 'called that one right'.

She told ITV News: 'We have to look through all of this. This is a great moment but we need to look through six or nine months down the road.'

The volume of shares changing hands topped 36 million while there were reports of members of the public having difficulty selling.

MPs on the Business Select Committee are poised to launch an inquiry into the flotation and could call in investment bankers who helped price the shares.

It is thought ministers tried to increase the £3.30 maximum cost at the eleventh hour but were warned by investors that they would pull out if the price rose.

Members of the CWU union are expected to back industrial action, with any strike set to be held on or after October 23 - the run-up to the busy Christmas period.

 

About 150,000 postal workers are sitting on stakes worth around £3,260 each, after staff were handed 10 per cent of the company, although they cannot cash them in for three years.

Ms Greene, opening trading at the London Stock Exchange today, said: ‘This marks the exciting next phase in our company's long and proud history.

‘With the support of our new shareholders, we are in a strong position to move forward, to compete effectively across our markets and to grow our business.

‘Royal Mail will continue to be an essential part of the fabric of the UK, providing the universal postal service that is cherished by the 29 million households and businesses across the country that we serve.’

Robbery: Some protesters dressed as burglars last week to accuse 'fat cats' of stealing profits which should go to the taxpayer

Robbery: Some protesters dressed as burglars last week to accuse 'fat cats' of stealing profits which should go to the taxpayer

She was joined by Business Minister Michael Fallon and Treasury Chief Secretary Danny Alexander.

However, Adrian Bailey, the Labour chair of the Business Select Committee, said yesterday that the early evidence of the share price ‘vindicated’ concerns raised when it quizzed Business Secretary Vince Cable last week.

Mr Bailey added that he would seek fresh hearings about the sell-off, including possible grillings of the banks which advised the Government on the firm's value, if the market price remained so high.

But he needs the agreement of the committee, which has a majority of Coalition MPs.

‘At the meeting last week it's fair to say that members of the committee had one view and the Secretary of State had another,’ he said.

‘The share price movements have vindicated the concerns of the committee members. Let's see where the price settles.’

Royal Mail by numbers

In early trading shares touched a high of 490.7p amid continued strong demand.

At the current price, the company looks a likely candidate for the FTSE 100 Index of Britain's biggest listed companies, with entry expected in the December reshuffle. This would draw in FTSE 100 tracker funds, which follow the performance of the top tier.

The Government's retail offer to small investors was seven times oversubscribed, while demand from big institutions ranging from pension funds to hedge funds exceeded the allocation by 20 times.

Stockbroker Hargreaves Lansdown was so overwhelmed with demand on Friday that its website crashed and phone lines were jammed.

The Bristol-based brokerage said it was ‘very busy’ again today but its service was back to normal.

Hargreaves Lansdown apologised after being hit by ‘immense’ demand, and said it expects the flotation to boost customer numbers. It added that there will be ‘no notable financial implications’ for the group from the breakdown.