Question

14

RMX pic
RMX plc provides delivery services. Until recently RMX was a government-owned
public corporation but in October 2021 it was privatised, transferring ownership from
the public to the private sector. At the moment RMX plc still has a legal obligation to deliver items six days a week and at the same price to every address in the country.
When RMX was privatised the demand for its shares was so high that applicants were
limited to a maximum of 227 ordinary shares at a total cost of £750. In total
1 billion shares were sold to private individuals and other businesses, valuing the
company at £3.3 billion. Over 10% of the 1 billion shares available were re-sold by
shareholders in the first hour of trading and the share price immediately rose.
The most recent accounts of the company show that between April and September
2022 RMX's profits were £283 million, almost double the £144 million earned in the
same period the year before. It had also reduced its loans by 20% and improved its
cashflow position, which should enable it to pay high dividends. After the publication
of these accounts (which occurred after the privatisation) the company's share price
rose again to £5.60 per share.
From July to September 2022 RMX's sales rose by 9%, mainly due to a large
increase in revenue from its parcels business due to the increase in online shopping.
However, conflict between RMX and its employees remains. The Communication
Workers Union (CWU) wants higher pay rises, greater job security and protection of
pension schemes for RMX employees. Approximately 115 000 of RMX's 150 000
staff are members of the CWU trade union.
Analysts claim the business needs more investment to continue modernising and
changes to its management style to achieve greater productivity.
Do you think that buying shares in RMX plc when they were first sold was a good
decision? Justify your answer.
[16 marks]

Answer 1

Based on the information you provided, it seems that buying shares in RMX plc when they were first sold could have been a good decision. The demand for RMX’s shares was high when it was privatised, and the share price immediately rose after trading began. The company’s profits between April and September 2022 were almost double what they were in the same period the year before, and its sales rose by 9% from July to September 2022. Additionally, RMX reduced its loans by 20% and improved its cashflow position, which should enable it to pay high dividends. After the publication of these accounts, the company’s share price rose again to £5.60 per share.

However, there are also some potential risks to consider. There is ongoing conflict between RMX and its employees, with the Communication Workers Union (CWU) demanding higher pay rises, greater job security, and protection of pension schemes for RMX employees. Analysts also claim that the business needs more investment to continue modernising and changes to its management style to achieve greater productivity.

Ultimately, whether buying shares in RMX plc when they were first sold was a good decision would depend on an individual’s investment goals and risk tolerance. It is important to carefully evaluate all available information and consider both the potential rewards and risks before making any investment decisions.

Explanation: