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Royal Mail on course to enter FTSE 100
by David Campbell on Oct 11, 2013 at 07:58
Bidding on Royal Mail shares briefly rose as high as £10 ahead of the market open before settling back at closer to 442p as the shares made their market debut.
The 25% premium above the top 330p price set by the government will raise serious questions about the value it achieved for taxpayers.
‘With demand so high for this stock expect a volatile day,’ said Spreadex trader Alex Conroy.
While a rush for the shares was not surprising given the 6% initial dividend yield on offer, the level of demand will rekindle questions about the pricing of the offer, and the methodology used to reach it by banking group Lazards.
It is not unusual for institutions to aggressively overbid for highly-subscribed share issues to ensure that they can get access to their targeted allotment. But the premium offered by buyers at launch suggests that investors would have been prepared to offer much more.
'The [market cap] shot up from £3.3 billion to £4.5 billion in a matter of seconds,' added Conroy. If it can hold that value the company will enter the FTSE 100 at the next index rebalancing.
'This has led to accusations that the stock was severely under-priced with the price limit for the IPO set at 330p. We are currently trading the stock at 437.6p-443.4p showing a drop off from early trading in the session. This could however just be the lucky participants in the IPO selling and taking early profits.'
Smaller investors chalked up a significant victory in the 20-times oversubscribed Royal Mail privatisation with private buyers bidding for more than £10,000 for shares receiving nothing from the IPO.
Members of the public who bid between £750 and £10,000 will receive shares worth £749.10, while City institutions’ share of the pie was also cut back.
The government had been criticised for allocating 70% of the issue to big banks and pensions managers. That was ultimately trimmed back to 67%.
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