The government is planning to sell some of its shares in Royal Mail, which is intended to be listed on the London Stock Exchange. Investors are expected to make a profit as the shares are said to be undervalued. The minimum buy for retail investors is £750.
4 Reasons to buy
1. Cost cutting
There is a continuing restructuring programme at Royal Mail which should lead to costs falling by 2pc-3pc a year.
Rumoured to be around 7% which is attractive in a low interest rate environment
3. Distribution network
Royal Mail has a strong distribution network which cannot be easily replicated
Royal Mail has surplus freehold property in central London that could be worth £500m. Any proceeds from a sale would be returned to shareholders.
2 Reasons to Not Buy
The company faces strike threats from its unionised workforce.
Every 1pc fall in letters volumes cuts the company's sales by £75m and it expects an annual decline of 4pc-6pc. A 9pc decline would mean £225m a year less cash coming into the business than expected. (£200m is the amount expected to be spent on dividends)