Advisers deliver Royal Mail warning

Advisers were warning investors against getting their fingers burnt by trying to trade in the newly launched shares of Royal Mail last week.

The postal organisation was floated by the government on the stockmarket in a frenzied initial public offering (IPO) that represented the biggest privatisation in the UK since the railways were sold off in the ‘90s.

The Royal Mail shares offer was seven times oversubscribed and thousands of direct retail investors who had requested between £750 and £10,000 of equity received shares priced at 330p.

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As the shares were then floated on the market their value rocketed to more than 450p, providing investors with an instant profit.

But in spite of the clamour of big institutions to get hold of more shares, advisers were bearish on the group’s prospects, both as an investment and due to the lack of government incentives to sell the shares.

Brian Dennehy, managing director at Dennehy Weller & Co, said Royal Mail shares were “not an investment but a distraction”.

“Nobody woke up yesterday and said: ‘I have a hole in my portfolio for a postal delivery service’,” he said.

“These new launches are really a fairground attraction. For a short while it is the noisiest ride attracting the punters with some loose change. It is just punting by retail investors and shouldn’t be taken too seriously.

“This is all about politics and greed.”

Mr Dennehy added that investors considering purchasing Royal Mail stock should treat it as if they were buying a fund.

“As with any new fund launch, you have to ask yourself whether there were any existing shares out there with greater long-term growth potential and with clear track records already established.”

Jason Butler, partner at Bloomsbury Financial Planning, said he would not get clients involved in an IPO.

“All the evidence is that you should not buy shares in an IPO because it is not the true price – it is a price someone has made up,” he said.

“You need the price to settle to its true value.”

The demand saw broker Hargreaves Lansdown unable to process every request last Friday, with the company apologising on its Twitter feed to those unable to trade the shares.

Tom McPhail, head of pensions research, said: “I know that we and other brokers have struggled to deal with the demand.

“Demand has been off the scale.”

Mr McPhail added that Hargreaves Lansdown had six times as many staff on its broking desk as normal to deal with the demand.

But Devon-based Philip J Milton & Co chose not to be an agent for the IPO. Philip Milton, managing director at the firm, said during previous government privatisations there had been a financial incentive to help companies cover the cost of promoting the shares to clients.

He said he had considered being an agent, but was “very much dissuaded as there was no capacity to get payment for dealing with the process of the share applications”.