The Royal Mail floatation has moved another step closer after the government clarified the pricing for the initial public offering at a range of between 260p to 330p a share, with between 401m and 522m shares up for grabs. That would catapult the iconic mail company straight into the FTSE 100 with a market capitalisation of around £3bn.
The company has its problems, not least some increasingly belligerent labour relations, but the implied average share price on launch of 295p represents around a 30 per cent premium to book value per share of 180p, based on the Royal Mail's current book value estimate of £1.8bn and 1bn total shares, which includes the shares the government will hold. In addition, the notional dividend yield of over 6 per cent assumes a pay out of £200m - around 70 per cent of its profits - which the company estimates it would already have paid out if it had been listed for the whole of 2013-2014 (it has a Mar 31 year-end.) The size of the government's residual stake will depend on demand, but if this is strong enough in the weeks after launch then it could be as low as 30 per cent of the company, with employees holding a further 10 per cent.
The timetable means the deadline for retail investors to make share applications via intermediaries, online applicants and hard copy is Tuesday 8 October, while the government will confirm the offer price and size on Friday 11 October. Full trading will start on the London Stock Exchange on Tuesday 15 October.
