Profit warnings are supposed to be bad news for capital markets bankers. But the Royal Mail's announcement on Tuesday morning that parcels revenues were down and were likely to continue going that way will likely bring some comfort to those that ran the postal operator's IPO, after a barrage of criticism.
The new results have proven those long term shareholders — who did nothing wrong but ask for shares at a lower price than other people would buy them in the aftermarket — right. GlobalCapital warned not long after the deal finished that the success of the deal would be judged in the long term. It looks the price, nine months on, is settling more like 460p — closer to the 330p that the deal was priced at than the 607p-area prices that commentators were getting hot and bothered about in December.
The shareholders that the government wanted, for better or worse, were supposed to be in the stock for the long term. That long term view is bad: the company is in managed decline, trying to hold on to some sort of profitability as shrinking volume of business is fought over by a vociferous set of competitors.
The Royal Mail completed its IPO in October. The British public's judgement was in at about the same time: it was a failed deal, the government had handed free money to their chums in the city (last week reckoned by MPs to be about £1bn), and they'd been ripped off.
The public is right to closely scrutinize any sale of public assets — both the logic of selling at all, and the means by which sales are executed. But both elements in the Royal Mail IPO were caught up in a torrent of rage. To commentators who believed in public ownership, the aftermarket in Royal Mail was proof positive of the perfidy of the privatizers. But the success of the IPO as an exercise in equity capital markets, and the wisdom of selling Royal Mail at all, should be two distinct arguments.
There's just under three months left before the 12-month horizon that bankers on the deal said was the real point to judge its performance.
But as time goes on and Royal Mail's decline takes clearer hold, the deal looks less and less of a failure. Bankers and early investors can feel pleased with themselves; the public can start questioning the logic of privatizations, not of IPOs.