Royal Mail jumps dramatically in first week of trading

Royal Mail has been one of the most anticipated stock exchange floats of 2013. In the weeks prior to its 11 October float, it was reported to be heavily oversubscribed, with many investors unlikely to receive the full stake they had applied for.

Shares in the UK’s 500-year-old postal service sold for 330p, which led to criticism it was undervalued in light of the oversubscriptions. Anyone who made a single application for between £750 and £10,000 received 227 shares at £749.10, although anyone who applied for more than £10,000 received no shares.

More than 100m free shares were allocated to eligible employees, giving a total initial market value of £489m.

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Each eligible full-time Royal Mail employee was entitled to 725 free shares with an initial market value of £3,545.25, which is above the £3,000 maximum amount that can be allocated to an individual member of staff in a tax year under HMRC rules. The excess, which arose from the shares’ strong performance, will be allocated in the next tax year.

Shares jumped almost immediately after floating and rose by 39 per cent in the first day, closing up 125p at 455p, which valued the company at £4.6bn. The success continued throughout the first week, although the price dipped slightly towards the end of the week.

By Monday 21 October, shares had rocketed to 520p. The Chart shows the trading day close share price for the stock from open to 18 October and shows the increase of 50 per cent in just one week.

The flotation has contributed to some firms seeing record interest. Bristol-based fund supermarket Hargreaves Lansdown saw its assets under administration grow to a record figure of £39bn in the three months to 30 September – up 7.9 per cent from the previous quarter’s £36.4bn.

It said the record number was due to “unprecedented” public interest in Royal Mail – initial demand actually caused its systems to crash – with a large proportion coming from first-time investors.

The firm said that although it cannot disclose details of participation, it was “immense”, suggesting it has been the most sought after initial public offering of the year.