Government 8216 too cautious 8217 on Royal Mail share price

Shares in Royal Mail were undervalued when the government floated the postal service on the London Stock Exchange last year.

The share price of the company shot up on its launch in October, which led to accusations that the taxpayer had lost out on a major windfall from the flotation of the firm.

A new report from the National Audit Office (NAO) has now accused the government of rushing the share sale through during this Parliament, rather than focusing on getting the best possible value for money from the company's privatisation for the benefit of the taxpayer.

The NAO's head Amyas Morse stated that the Department for Business, Innovation and Skills was too cautious when it set the sale price of 330p per share. Stocks in Royal Mail have risen by around 70 per cent over the course of the last six months.

He said: "The department was very keen to achieve its objective of selling Royal Mail, and was successful in getting the company listed on the FTSE 100. Its approach, however, was marked by deep caution, the price of which was borne by the taxpayer."

Low price

George Godber, a fund manager at Milton Group, told Radio 4 he was "astounded" at the price set for Royal Mail by the government last year. He said: "I thought it was significantly underpriced. In stock market terms, this was the London 2012 Olympic ticket moment, lots of people applied but very few got to go to the opening ceremony."

Business secretary Vince Cable, responding to the NAO report, added that achieving the highest possible price for Royal Mail was not the primary aim of the government.

"The report concludes there was a real risk of a failed sale attached to pushing the price too high," he said, pointing out this would have been the worst possible option for the taxpayer.

Shares in Royal Mail are up again this morning (April 1st), with stocks in the business up by around 0.5 per cent in the early stages of trading on the London Stock Exchange. However, some of these gains had already been erased by 08:28 BST, when stocks were up by 0.29 per cent on the opening of the index.

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