Royal Mail shares open 36 at 450p

Royal Mail shares opened higher by a staggering 36% on their market debut in trading on Friday (conditional trading), hitting a high of 456p giving early investors an immediate profit.

After the initial burst higher, shares quickly traded within a range of 438p and 450p for the first 50 minutes of trading.

The strong open is of course no real surprise with many traders expecting shares to open between 430p and 450p having seen the offering be over-subscribed by seven times.

The open will immediately raise questions as to whether the government have fundamentally undervalued the UK institution and this will no doubt be the tone of attacks to the coalition from Labour in the coming weeks.

IPO’s are priced to ensure a good open

However it must be remembered that IPO’s are often priced to attract early buyers to give the newly listed company time to settle into life on the stock market. The government could have ill afforded a weak open or a debut on the market that saw shares fall. And what’s more, due to the level of public interest and the awareness of the float, shares were always likely to be in high demand early on.

IPO’s are notoriously volatile, especially in the first few days on the market and as such investors must be somewhat cautious to call the IPO a roaring success just yet. There is always the temptation that given the very public cries that the offering was undervalued, some investors may want to cash in early, especially if prices start to fall back below the 400p level. Facebook and LinkedIn are just two IPO’s that endured huge volatility in their respective first few weeks on the market and serve timely reminders IPO’s must not be judged purely by their market debut.

Yet make no mistake, the market open for Royal Mail could not have gone better for the coalition government. The real test of course comes in the weeks and months to come and whether early shareholder confidence remains for the long term.

Royal Mail market open price chart