Unsurprisingly, then, grumblings that the offer was mis-priced rumble on, with revelations that the valuation the government eventually chose to go with was at the lower end of the range offered in the beauty parade of banks, and has lost the taxpayer £1bn as a result. I don't think it's that simple - valuation is as much art as science, because a certain amount of subjectivity is required to build these models, as the wide price range amply demonstrates. (If you want to have a go at valuing Royal Mail yourself give our declining companies valuation calculator a try here http://bit.ly/IiRHdJ - it's amazing how much slightly different inputs can affect the valuation output).
We'd also argue - as we did in our analysis of the flotation written in July - that the shares always needed to be priced to go; overpriced IPOs have a tendency to backfire, and as a business still in the midst of a multi-year turnaround demanding a premium price for the Royal Mail could have resulted in recriminations of a very different nature.
The flipside of the Royal Mail's all-too-successful debut could also be that the market rather than the government's advisers have got the valuation wrong - as Dominic Picarda pointed out to me, there are now fewer noteworthy bears than at any point since March 1987. Maybe in all the excitement the price has simply got ahead of itself. And in Royal Mail's case, despite the surge in profits in the group's first set of accounts as a public company, there are some clear signs that the business faces serious challenges in the years ahead. Letter volumes continue to decline and plentiful competition means the parcel volumes can't be relied upon to deliver revenue growth via price increases indefinitely.
The threat of industrial action is also a unique problem for the Royal Mail - such that the group warned that some commercial customers are defecting to rivals as a result. We, too, are one of its business customers and have considered alternatives to prevent complaints that subscriber copies have not arrived on time. The reality is that, thus far, we have not found anyone who can offer same reach or reliability. That may not be much comfort to our readers who occasionally suffer late delivery - but to shareholders it should provide reassurance that the Royal Mail will be around for some time. I'd be inclined to pop a few more shares in the mailbag should any significant weakness arise.
