Five reasons not to buy Royal Mail shares

The price is right, said Vince Cable of the Royal Mail share prices yesterday.

He slammed shadow business secretary ChukaUmunna’s suggestions that Royal Mail is being sold too cheaply.

“It is irresponsible to imply that a share offering looks significantly undervalued,” Cable said.

“I think you should consider the risk that you may be influencing the decisions of retail investors. Equity investment always involves risk, particularly when the company in question is new to the market. In the light of this it is dangerous to imply that there is an easy bargain to be made.”

So should you buy Royal Mail shares? Here are five reasons not to:

1. Number of letters delivered by Royal Mail have slumped 30%

Ed Bowsher, financial journalist, Moneyweek said: “The biggest minus point – and it is a very big one – is that Royal Mail’s traditional business is in massive decline. The number of letters delivered by Royal Mail has slumped by 30% since 2006, with an 8% decline over the last year alone.

“Granted, that decline is at least partially offset by Royal Mail’s fast-growing parcels business. But there’s plenty of competition in that market, and not all the players involved are prospering. For example, Rentokil Initial sold its courier business, City Link, earlier this year for just £1.”

2. The £750 minimum application is too high

Shadow business secretary Chuka Umunna said: “That [£750] is a lot of money for most people - it is out of reach for many. Most of the people benefiting from this will be the speculators and the hedge funds.”

3. It’s just a bit dull

Private Investor James Bartholomew told the Daily Telegraph:

“I could tell you that I am not subscribing because my broker says they will be oversubscribed and my application would be drastically scaled down anyway.

“I could say I would rather invest in an innovative, efficient young delivery company set to gain market share. But that would merely be logic. The more likely explanation is that, for my cast of character, it is just a bit dull.”

4. It’s “daylight robbery”

 Justin Modray, founder of financial information website Candid Money, told the Daily Mail:

“The government’s selling charge is daylight robbery. There is no reason why the share trading should cost more than £10. Customers are penalised for not using a broker.”

5. STRIKES!

The Communication Workers Union general secretary, Billy Hayes, said: “Why should you buy shares in something which you already own? Surely that is an odd thing to do.

“The Royal Mail is currently a publicly owned company meaning that you, I and all UK citizens essentially own it. If you happen to have a spare £750, which is the minimum amount being accepted for this sale, I would suggest you spend it on something other than a cherished national institution, which would be better off remaining in public hands.”

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