£500 punt on Thatcher's biggest sell-offs is now worth '£4,270'
COMMENT: How the baby boomers benefited from a golden age of sell-offs.
By Andrew Oxlade, Head of Personal Finance Daily Telegraph 19 Jul 2013
In his list of 10 entitlements baby boomers had which the next generation won't, my colleague
James Titcomb touched on a fascinating point on the Eighties sell-offs: “The privatisations of
once large state institutions such as BT, British Gas, water and electricity companies, and
British Airways led to share windfalls for many boomers and the creation of the so-called
So how much did they make? Previous calculations I’ve seen have been derailed by the
splitting of companies and the lack of readily available, published information on dividends
that go back to 1984. But some have tried.
In March, John Douthwaite, chief executive of SimplyStockbroking, did some numbercrunching
Over 21 years, starting in 1984, BT had three share offers, the UK’s largest rights issue, plus
the demerger and takeover of O2.
Mr Douthwaite said: “If you applied for the minimum 100 shares in each offer, held them to
get the bonus shares and instalment discounts and took up the rights you would now hold 423
BT Group shares valued at £1,175, but your cost would have been £1,116. However, in 2005
you would have received £846 from the Telefonica takeover of O2 shares which you received
when they split into BT Group and mmO2 in 2001.
“I told you it was complicated,” he said. “But it has not been a bad investment, especially
when you take into account dividends received as well.”
Now, another broker - A J Bell - has had a crack at trying to work it out. And not just on BT,
although with 750,000 Britons still holding the shares and the price 30pc higher since Mr
Douthwaite did his sums, it remains the hot topic.
Inspired by confirmation that the Royal Mail will float on the stock market, the company
made an overall calculation for the gains investors have made on the five biggest
privatisations in the Eighties and compared it to the rise in the FTSE All-Share.
The company found that those who invested £100 in each of those five sell-offs - BP, British
Gas, British Steel, BT and Rolls-Royce - would have generated a return of 854pc, from
December 1984, when BT was floated, to last month. That compares with a gain in the FTSE
All-Share from 571.9 points to 3,345 - a 485pc rise. The privatisation punt would have turned
£500 into £4,270, by A J Bell’s estimate, although the effects of inflation would have eroded
the real value of that pot.
The runaway winner of those shares has been British Gas, which was split into Centrica,
supplying and billing households, BG Group, drilling and exploring, and Lattice, which owns
the gas pipe network and became part of National Grid in 2002.
Creating this new business structure and a boom in the value of energy companies means a
£100 investment in 1987 is now worth £2,864.
So will Royal Mail post such stunning gains?
Charles Galbraith, managing director, said: “Whether Royal Mail will go on to be as
profitable will remain to be seen, but the business is taking steps to try to ensure it is attractive
and as viable as possible - including enhancements to services - so it could prove an
interesting proposition for investors.”
The bottom line, of course, is that investors make money because they buy shares during a
cheap window of opportunity and because the company is well placed to grow its profits.
Royal Mail’s valuation is yet to be set and despite growth in delivering parcels, largely
ordered online, its future profitability is uncertain.
The late Baroness Thatcher offered a window of opportunity to baby boomers as she created
the shareholder generation. Thatcher’s children would be wise to hunt out their own cheap
Total return from £500 investment £4,272
% return 854%
|| First day close
|| Price today
|| Value of £100 invested
|| 21 Aug 87
| British Gas
|| 8 Dec 86
| British Steel
|| 2 Dec 89
| British Telecom
|| 3 Dec 84
| Rolls Royce
|| 20 May 87