By Mark Kleinman
Mark Kleinman is Sky News’ City Editor and is the man that gets the City talking in his weekly City A.M. column. This week he tackles Royal Mail shareholders, Revolut’s latest valuation, and Hargreaves Lansdown stocks.
Czech is on way to sceptical Royal Mail investors
Royal Mail shareholders beware: your cheques aren’t in the post just yet. Rarely has there been as sizeable a deficit between an offer provisionally recommended by a public company board and the prevailing stock price as in the case of International Distributions Services (IDS).
The 370p-a-share proposal pitched by Daniel Kretinsky’s EP Group, which is likely to be formalised in the coming days, does not look generous.
The exasperation in IDS chairman Keith Williams’ response to the proposal, though, was clear. In his assessment, the government – until 2013 the company’s sole owner – has acted as an obstacle to the regulatory reform necessary to enable Royal Mail to prosper.
Enter Kemi Badenoch, the business secretary, who met Mr Williams and Martin Seidenberg, IDS’s chief executive, on the day after it said it would recommend Mr Kretinsky’s offer.
Officials at the Department for Business and Trade briefed after the meeting that she had agreed that it “would be good for the Secretary of State to engage with the bidder at an appropriate time to explain her expectations in relation to Royal Mail”.
Come again? This is one of Britain’s most historic and important companies. In an election year, it smacks of an astonishingly hands-off approach. Granted, that may be in part because of commitments that Mr Kretinsky has already volunteered.
Yet it seems odd that there is none of the urgency that Whitehall has demonstrated in relation to the ownership of The Daily Telegraph – a bid which has implications for media freedom but which preoccupies a comparatively small proportion of the British public.
That leaves a debate around price, as well as Mr Kretinsky’s ability to clear national security hurdles. Accepting a bid of 370p feels like a board too willing to throw in the towel. Supposing that Ofcom, the industry regulator, decides after a lengthy consultation that IDS should be allowed to deliver second-class post less frequently. This would save several hundred million pounds a year, but still enable Mr Kretinsky to argue that he is committed to a reformed Universal Service Obligation.
This would be worth substantially more than the premium being offered by Mr Kretinsky.
Investors are evidently sceptical that ‘the Czech Sphinx’ is going to get his hands on one of Britain’s corporate crown jewels. That scepticism, I sense, is going to turn out like an increasing number of Royal Mail deliveries: misplaced.
Revolut valuation would gain from fraud clean-up
Quids in: that’s the hope gripping Revolut staff after I revealed at the weekend that Britain’s most valuable fintech is exploring a $500m secondary share sale to take place later this year.
The expectation is that the round, which might see the available stock mopped up by existing investors or a couple of new institutions join Revolut’s roll-call of owners, will be squarely aimed at employees.
That will undoubtedly annoy external shareholders keen for a liquidity event three years after the last company-orchestrated capital raise.
Nik Storonsky, Revolut’s co-founder and chief executive, has spoken of turning it into a $100bn company.
The tech funding downturn in the last two years will have slowed the prospect of it achieving his ambition, but it is unarguable that Revolut’s growth has been impressive: 40m customers versus 16m at the point of its 2021 Series E round, and £1.7bn (or thereabouts) in revenue for its last financial year, virtually double that at the point of its last fundraising milestone.
Even in a market which has turned bloody for fintechs, Storonsky might legitimately argue that he deserves, at the very least, to maintain that earlier valuation.
Yet news of this funding round comes amid increasingly frequent anecdotal evidence of business customers losing out in scams for which Revolut has opted against reimbursing them. My inbox has seen a steady flow of such complaints in recent weeks.
For its part, Revolut says it “takes fraud and the industry-wide risk of customers being coerced by organised criminals, incredibly seriously” and prevented over £475m of potential fraud against its customers last year.
The company’s approach to governance, fraud and AML controls has haunted it in the past. Addressing that still feels like the biggest risk to Revolut’s UK banking licence application, and Storonsky’s valuation ambitions.
Hargreaves Lansdown may be the next UK bid target
Hargreaves Lansdown, the savings platform, is keen on keeping its customers informed about which UK stocks to keep a close eye on. Here’s one they should definitely be paying attention to: Hargreaves Lansdown.
In the last few days, the stock had ticked up amid increasingly frenetic rumours that it had attracted interest from at least one potential bidder.
After the market close yesterday, a consortium comprising CVC Capital Partners, Nordic Capital and funds managed by the Abu Dhabi Investment Authority confirmed it had made an offer of 985p-a-share in late April which was rejected by the Hargreaves Lansdown board.
The trio were, they said, contemplating a further offer.
From its trough of about 700p, shares in Hargreaves Lansdown had spent this week hovering around 930p, giving the company a market valuation of about £4.25bn. Under Dan Olley, its newish chief executive, it has outlined plans to invest more heavily in technology and has been rewarded with a rise in assets under administration to a record £149.7bn.
Sources tell me that at least one of the consortium members may struggle to commit to an offer worth more than £10-a-share.
Critical to the prospect of a deal, too, will be the views of Peter Hargreaves, the co-founder and still holder of a roughly-20% stake. Any bidder would be unwise to take his assent for granted.
