The news that Royal Mail is finally to be floated on the stock market put me in mind of that other great period of government sell-offs in the 1980s. The three Bs – British Gas, British Telecom and British Petroleum – were all put under the hammer. True, BP was already listed on the London Stock Exchange but advantage of a buoyant market was taken to offload the rest of the state’s stake.
This particular exercise very nearly fell flat on its face. Because BP’s shares were quoted, the price was visible and the offer represented a discount on that price to encourage investors to buy. Unfortunately, between the time the deal was struck and the closing date for the offer, Black Monday took place, with shares in general taking a massive tumble. Were it not for the Kuwaitis, the offer could well have failed.
It is unlikely that the Royal Mail sale will hit similar problems as it will probably be priced to encourage City institutions to underwrite the share offer but this company’s passage to market is not going to be smooth. Aside from union opposition, the rapidly changing nature of the postal delivery market makes forecasting future profit trends difficult. Moreover, competitors could well be eyeing up this core provider with a view to pouncing post flotation.
Meanwhile, the hype over getting on board has started, with emails inviting me to register my interest hitting my inbox. This is where the comparison with that golden period more than a quarter of a century ago starts to become interesting.
Then there was extensive advertising, with the public invited to apply for shares using forms published in newspapers. Those of a certain age will recall “Tell Sid” from those days. Today it will be intermediaries who will be co-ordinating, and even stimulating interest.
This digital age has little time for those who wish to receive share certificates, so it is likely that the entire share register of Royal Mail will be dematerialised. So applying for shares will have to be through an organisation able to provide the custody arrangements that now dominate share – and fund, for that matter – ownership. The world has truly changed since last we received the offer of owning previously nationalised businesses.
As for markets, there is growing evidence of economic recovery taking place but central banks continue to dampen expectations of any early rise in interest rates. The issue appears to be a desire to avoid cutting off the recovery in its prime, so if businesses feel confident that low interest rates will be with us for a few more years, perhaps they’ll have the confidence to invest. Unfortunately it seems to be the consumer that is spending, rather than the corporate sector, though this is helping the recovery along.
Over in Europe, the turnaround looks even more impressive, with some reports that the decline in the Greek economy has at last been reversed. Europe, which was savaged by investors on fears that the single currency zone faced an inevitable break up, looks good value right now. If indeed the collapse of the Eurozone has been averted, then we should see a return of confidence in continental bourses.
Even the euro is making shares look cheaper. For several weeks sterling has been rising against both the dollar and the euro, with €1.20 now in sight. At that level it would not be surprising to see some profit taking, but a stronger pound is making property purchases in those southern European regions hardest hit by the downturn look appealing.
All in all, things do look to be improving, which is why markets have had a good period overall since the end of last year. It is whether this improvement can be maintained that will determine future performance.
Brian Tora is an associate with investment managers JM Finn & Co