The business secretary has been under fire over Royal Mail's sale price since before the flotation
The business secretary, Vince Cable, defended the government's valuation of Royal Mail on Wednesday after solid results from the newly privatised group sent its shares even higher.
Royal Mail was privatised last month when the government sold 60% of its stake to investors in an initial public offering (IPO).
Cable has been under fire over Royal Mail's sale price since before the flotation. The company's shares surged by more than a third on their first day of trading and have risen further since.
Ahead of the group's stock market debut Cable dismissed a likely jump in the share price as "froth" and said it would take months before the shares settled to their true value.
Giving evidence to the business select committee alongside his advisers, Cable stuck by "froth" as a "good old Anglo-Saxon term" and said market prices were not always rational.
"It will be a long time before we can take a view," he said.
Cable and Michael Fallon, the business minister who handled the flotation, said they decided against increasing the sale price by 20p a share because the market was already jittery over a potential US debt default.
But Mark Russell of the Shareholder Executive, which oversees state-owned businesses, admitted he and the government were surprised by the size of the rise in Royal Mail shares.
"We did not anticipate the share price to move as much as it did … I don't think any of us anticipated the size of the jump," he said.
Moya Greene, chief executive of Royal Mail, lent Cable and Fallon support as she announced a near doubling of first-half profits in Royal Mail's first set of figures as a publicly traded company.
"This was the most complex transaction in my career and I believe the government did a really good job," she said.
She added that analysts were getting over-excited about potential payouts from Royal Mail off-loading or selling and leasing back some of its vast property holdings. Clifford Chance, the City law firm with links to investment banks and big investors, is now analysing the company's portfolio of 2,000 UK properties.
Greene said: "People are probably running away a bit with themselves. They are looking at development with £ signs in their eyes that we would be a bit surprised by."
Royal Mail shares were up 5% by mid-morning on Wednesday to 559.5p – 70% higher than the flotation price of 330p. Its market value has increased by £2.3bn since the flotation, which valued Royal Mail at £3.3bn.
Operating profit for the six months ended 29 September was £283m, up from £144m a year earlier.
This year's figure was boosted by a £35m VAT credit and restructuring costs £50m lower than the year before. Total revenue increased 2% to £4.52bn, helped by growth in Royal Mail's all-important parcels business.
Royal Mail's performance depends heavily on increasing parcel volumes, boosted by deliveries of online purchases, and cutting costs to make up for declining letter deliveries, which fell 4% in the first half.
Parcel volumes were flat in the first half, mainly because the hot summer reduced online purchases, Royal Mail said. But the introduction of size-based charges increased parcel revenue by 9%.
Business customers have been wary about signing up to Royal Mail and have switched some business to competitors while the threat of industrial action loomed, the company said. As a result, parcel volumes may be flat for the nine months to the end of December, which includes Royal Mail's busiest period over Christmas.
Greene said Royal Mail's Christmas parcel revenues were vital for the company to keep investing and improving.
"It affects everything because as a group if the revenue line comes off we have a very high fixed-cost base because we are a universal service provider."
Royal Mail is in talks with the Communication Workers Union over a deal on pay and working conditions after the union called off a strike. The two sides have extended the deadline for agreement by a week, until 3 December.
Royal Mail said it expected to pay a final dividend of £133m for the full year.