Disappointed Over Royal Mail PLC? Here Are Two Flotations You CAN Profit From!

The aftermath of Royal Mail PLC’s (LON:RMG) offering.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I guess many readers will, like me, be disappointed with their allocation of Royal Mail (LSE: RMG) shares. If you did some research and made a considered investment judgment, then you might well feel short-changed at getting the same number of shares as casual punters drawn in by the chance to make a quick buck.

The dual message from politicians that the issue was under-priced but the share price post-flotation would be ‘frothy’ certainly wasn’t designed to encourage long-term investing. It’s churlish to begrudge the other guy’s profits, but I can’t help thinking the government has shot itself in the foot over future, less sexy, privatisations. I doubt I’ll bother.

Curate’s egg

For me, Royal Mail is a curate’s egg type of investment story: good in parts. A market-leading position in parcel delivery is attractive.  But the millstone of the declining letters business and the obligations that are inseparable from it could prove burdensome.

The low issue price made the investment case. A prospective 6% yield created a comfortable margin of safety. As I write, the shares are over 470p and the yield down to 4%. If the union announces a strike before you read this, the shares might be heading southwards. I’d have held on to a decent allocation through the volatility, but I sold my £750-worth.

IPOs

Initial public offerings can be binary: they do well, or they do badly. There is a more reliable way of profiting from the wave of new issues surging onto the London Stock Exchange — by being the seller of the shares. If the seller is a listed company, there’s a good chance that a successful flotation will boost the seller’s share price.

One company that could be shaping up for such a boost is hotel and restaurant operator Whitbread (LSE: WTB). The regular stock market rumours that it will float its Costa Coffee chain gained more credence last year when the finance director moved sideways to run the division. With the new issues market in buoyant mood, the time could be right.

Whitbread has big plans to expand its budget Premier Inn chain, and all parts of its business should benefit from the UK’s economic recovery.

Also rumoured to be looking at floating is property website Zoopla, 52% owned by the Daily Mail (LSE: DMGT).  With the housing market spearheading the UK’s economic recovery, it would be a good time to realise the value created after DMGT merged its property websites with the start-up that has grown to be the UK’s number two property website.

Reinvented

Newsprint may be in decline, but the Daily Mail has reinvented itself as an information-driven multi-media and events firm, with the most visited newspaper website in the world and a slew of consumer and B2B businesses. It’s the kind of transformation that its almost-namesake Royal Mail will have to pull off as its traditional business declines.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Tony does not own any shares mentioned in this article.

More on Investing Articles

Investing Articles

Surely, the Rolls-Royce share price can’t go any higher in 2025?

The Rolls-Royce share price was the best performer on the FTSE 100 in 2023 and so far in 2024. Dr…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

Here’s how an investor could start buying shares with £100 in January

Our writer explains some of the things he thinks investors on a limited budget should consider before they start buying…

Read more »

Investing Articles

Forget FTSE 100 airlines! I think shares in this company offer better value to consider

Stephen Wright thinks value investors looking for shares to buy should include aircraft leasing company Aercap. But is now the…

Read more »

Investing Articles

Are Rolls-Royce shares undervalued heading into 2025?

As the new year approaches, Rolls-Royce shares are the top holding of a US fund recommended by Warren Buffett. But…

Read more »

Investing Articles

£20k in a high-interest savings account? It could be earning more passive income in stocks

Millions of us want a passive income, but a high-interest savings account might not be the best way to do…

Read more »

Investing Articles

3 tried and tested ways to earn passive income in 2025

Our writer examines the latest market trends and economic forecasts to uncover three great ways to earn passive income in…

Read more »

Investing Articles

Here’s what £10k invested in the FTSE 100 at the start of 2024 would be worth today

Last week's dip gives the wrong impression of the FTSE 100, which has had a pretty solid year once dividends…

Read more »

Investing Articles

UK REITs: a once-in-a-decade passive income opportunity?

As dividend yields hit 10-year highs, Stephen Wright thinks real estate investment trusts could be a great place to consider…

Read more »