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IPO showdown: Twitter vs Royal Mail
by Anna Dumas on Oct 04, 2013 at 14:02
Four leading wealth managers tell us which of the two big upcoming IPOs they would rather back, with one of the oldest forms of communication set to come up against one of the most modern.
Having heard that looking at the two communication giants in light of their impending IPOs was on every discretionary investors 'to do' list, Anna Dumas asks 'which would make the better investment, Twitter or Royal Mail?'
Click through to see four weath manager's insights on who should win the battle of the IPOs.
Duncan Carmichael-Jack, partner, Vestra Wealth
'It's an interesting one, because Twitter clearly has the fast growth and widespread appeal, as well as having extremely high gross margins thanks to advertising, but there's a danger of the 'Facebook scenario', with too high a pricing on the IPO. The demand is definitely there, but ultimately we'd need to see a pricing before we can make a proper judgement.
'Royal Mail, on the other hand, may not appear very glamorous, but as they say, where there's muck, there's brass! Obviously letters are dropping off, but parcels are rising with the increases in internet shopping, and the dominance of Royal Mail isn't easily threatened. Its biggest competitor is Yodel, which has only 8% of the market.
'Another crucial aspect is that post office counters aren't being included in the deal, and they are probably one of the weakest aspects of the business. So for me, it's Royal Mail. It's not as glamorous as Twitter but may well prove to be the better investment.'
John Dance, founder and branch principal, Vertem Asset Management
'We would prefer Royal Mail. Although clearly the letters business is in structural decline, and it has competition in the efficient delivery areas, the parcels business has grown strongly and we believe will continue to do so. E-commerce continues to provide strong growth opportunities and the courier industry is the 'picks and shovels' type sub sector that will benefit from that.
'The opportunity at Twitter clearly has good potential but we are yet to be convinced that the likes of Facebook and Twitter can be commercialised in the medium term to the extent that many believe.
'Versus other social media sites such as myspace and bebo, they have demonstrated greater longevity, but if users become too bogged down in adverts and commercial activities it opens up space for a new rival. Social media use still feels like a trend decision and those trends could change rapidly.'
Alan Beaney, investment director, RC Brown
'An interesting concept comparing Twitter and Royal Mail. In my view, the only similarity is they are both involved in messaging using the broadest definition; however, that is as far as it goes. Twitter caters to a growing market at the forefront of technology, while the Royal Mail caters to a shrinking market using yesterday's technology.
'This is, however reflected, in the prospective valuations of the two companies with Twitter being very highly rated and Royal Mail being very lowly rated. The difficult thing is deciding which will be the best investment.
'My feeling is that despite everything, Royal Mail will be the winner as expectations are very low and could well be beaten, while for Twitter expectations are very high and may not be met.'
Stuart Leigh Davies, branch manager, Redmayne Bentley
'It's down to valuation and investor type – nobody can agree on Twitter's valuation but the upside potential could be massive and the converse is true. There are a huge amount of assumptions and lack of consensus on how to monetise what they have. [With] Royal Mail on the other hand, the valuation is more predictable. The company has already announced that if the shares were already quoted, then £200 million in dividends would have likely been paid, giving it a yield in excess of 6.5% and a solid flow of cash. That at least gives analysts somewhere to start and the likelihood is, it will be priced to go.
'Twitter has massive potential but it's down to valuation. To use a well-worn maxim, 'a great story and a great investment are two different things'. It's either going to be hugely successful or an overpriced flop. I don't like the either/or scenario and so would go for Royal Mail instead on that basis. However, I can see the massive attraction that Twitter has for high risk investors.'