Friday, 11 October 2013

A cuppa look at Royal Mail

So, before breakfast I wrote a short post about Royal Mail before conditional trading began this morning. Sorry if it sounded a bit rushed towards the end, I realised I needed to log in to my trading account so I could buy as early as possible. I managed to secure £215 worth at 437p. (I always use "At Best" and put in a value rather than number of shares). Anyway, I've got my after school cuppa and a bit of cake, and I've decided to write a post for you guys instead of doing my Additional Maths homework on calculus. 
So, Royal Mail (RMG) opened this morning at 420p for conditional trading (Conditional trading happens before a flotation on the stock exchange has officially taken place. It carries additional risk, because in the unlikely event that a flotation does not subsequently complete, investors who have taken part would be responsible for unwinding any conditional trades. - Royal Mail Group website). At the time of writing, shares are at 447.1p. Basically, they've rocketed. Today, the big funds that were allocated big stakes (10 big funds were allocated about 50% of the shares) will mostly have been trying to increase their stakes, while many of the smaller investors who got £749.10 of shares for 330p each will have sold their stakes for big profits, about £250 profit each (I expect I would've sold if I'd had £750 lying around to invest on Tuesday). Everyone's pretty happy.
I'm planning to hold mine for a while though, maybe a week, maybe a month or two (this is obviously the "wrong" strategy, but it makes sense in my head) Here's my logic. Today, and for most of next week and a bit of the week after, the little guys will be cashing in. Next Tuesday, Royal Mail employees will also be able to sell theirs (they were each given about £2000 worth of shares to try to win them over), so big volume trading. From Tuesday people will also be able to buy the shares for their ISA, so that'll push up demand a bit too. 
In about a fortnight, I expect the majority of postmen will have sold their holdings. Many will have accepted the shares (basically free money!) but won't have any interest in longer-term investment so will sell up, preferring the cash instead. Fair enough.
So, after that, the volume of shares on offer will drop significantly. The posties will have sold up to the 10% of the company that's been given to them, and a large amount of their shares (which they can sell on Tuesday), will be bought by the keen ISA buyers (who can buy from Tuesday). 
That just leaves mainly funds and people who didn't get their requested allocation (basically retail investors who asked for over £10,000 & got nothing) wanting to buy. When the posties and short term retail investors have sold their allocated shares for a hefty profit in the next fortnight, there will be a much smaller volume of shares on offer so, by law of supply and demand, share price will rise as the funds (only 1 UK fund is currently a top 10 stakeholder) bid higher for the shares, leading to a price rise until early to mid-December. So I'll hold mine until then.

That's my theory anyway ...    I'd welcome any thoughts, even complete criticism. Anyway, I'd best go and do my calculus homework.

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