I can’t feel any attraction for buying Royal Mail (RMG) shares. The post service is a dying industry kept on life support by the purveyors of junk mail. It is a miracle it is still with us in the age of email attachments.
Even faxes have virtually died the death and they are a very recent invention compared with a postal service that has been running for more than 170 years. The principle that everyone should pay the same price no matter what distance the letter travels within the UK is untenable once the service is in private hands, as Michael Heseltine recognised when he considered, then sensibly abandoned, his plans to privatise Royal Mail 20 years ago.
Either the government will have to subsidise collections and deliveries in Cornwall and the Scottish islands or residents there will face paying substantially more for a deteriorating service. Only urban deliveries will make money.
It is, as evidence from the privatisation of the rail industry suggests, entirely possible that future governments will pour hundreds of millions of pounds in subsidies into the pockets of private company owners or, drawing on the experience of the water industry, allow private companies to strip out assets and pass the cash on to shareholders.
However, the world of finance has, like the communications industry, moved on since Margaret Thatcher set the privatisation ball rolling. The price at which shares in Royal Mail will be issued will depend on what City professionals are prepared to pay. There will be little if any scope for buying the shares on the cheap.
I was not worried that the issue price could have been anywhere between 260p to 330p a share. It is quite normal for a wide band to be set and the actual price, which will certainly top 300p, to emerge at the last minute. Private investors will pay exactly the same price as City institutions, so it is a level playing field.
Nor am I too concerned about possible industrial action by the Communication Workers Union, although an unhappy workforce is a serious negative factor. What sways me is that I just can’t feel I would be investing in a viable growth industry.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.
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