The government will announce the final details of how it will divide Royal Mail shares between the public and the City investors shortly after 4.30pm today.

Ministers held an emergency meeting earlier on Thursday to work out how to deal with phenomenal demand for shares in the privatisation.

More than 700,000 people have applied for the shares , reviving the privatisation fever last seen in the 1980s.

Vince Cable, the business secretary, said the public had placed orders for more than seven times the number of shares available to them. Small investors could have bought the entire company if the 70% of the shares on sale had not been reserved for City investors and pension funds. The government may decide to increase the proportion of shares available to the public at the expense of financial institutions.

The huge demand means that applications are bound to be scaled back. Those applying for the minimum £750 of shares may be the only ones to get what they have applied for while those who applied for shares worth thousands are expected to get just a fraction of what they wanted.

The BBC's business editor, Robert Peston, suggested that those who applied for more than £10,000 – the maximum allowed via orders direct from the government – may not collect any shares at all.

Michael Fallon, the business minister in charge of the sale, has said he is committed to making sure small investors "get their fair share" of Royal Mail shares. The Guardian has previously reported that the government will increase the proportion available to the public.

On top of the massive public demand, hedge funds and other institutional investors are understood to have placed orders for more than £30bn of the shares.

Cable said institutional demand was so strong that the government would be able to block shares from going to "spivs and speculators" in favour of "responsible long-term institutional investors".

The shares will almost certainly be priced at 330p, valuing the 500-year-old company at £3.3bn. The valuation has been attacked by the Labour party, which claims the government has massively undervalued the company and is shortchanging taxpayers.

Traders at IG Index expected Royal Mail's shares to spike to between 395p and 415p on Friday when the company is floated on the stock exchange. A rise to 400p would be a near-instant 21% paper return.

A City analyst on Thursday said Royal Mail could be worth as much as £6bn, almost double the government's maximum valuation.

The valuation by stockbroker Canaccord Genuity was the second to say the government had seriously undervalued Royal Mail, potentially shortchanging taxpayers by more than £1bn. It came as ministers held an emergency meeting to decide how to share out Royal Mail's shares following overwhelming demand from the public, City investors and pension funds. It is understood David Cameron will make a final decision on Thursday afternoon.

Canaccord said it believed the government could have sold Royal Mail shares at 599p, 269p more than the shares will be sold at when the company floats on the stock market on Friday morning.

Canaccord told its clients that its valuation "implies an 82% upside" on the 330p the government is expected to sell shares for. If Canaccord is correct in its valuation – which is based on the cashflow model Quest, which was developed by City expert Terry Smith – it means the government may have missed out on the extra £1.6bn it could have raised for taxpayers if it had sold the shares at 600p.

The Canaccord valuation came after rival stockbroker Panmure Gordon said the government had undervalued Royal Mail by "more than £1bn". Gert Zonneveld, Panmure's managing director, said the government should have valued the company at up to £4.5bn.

Panmure and Canaccord are the only two brokers to have published research as most of the others are involved in the sale and prevented from talking about the valuation.

Cable said he was confident the shares had been "priced in the right place". He said that Panmure Gordon's £4.5bn valuation was "way outside the estimates of most of the equity analysts".

Lord Forsyth, a former Tory cabinet minister, told the BBC's Daily Politics on Thursday that "clearly the pricing has been wrong".

In a note titled "A royal return on your money", Canaccord said: "We think there will be lots of happy shareholders with a minimum subscription come the 11th of October, but how many of them will be in it for the long-term? With unions being bought off and the UK economy recovering, and given the massive upside, the smart money will do well to hoover them up."

Canaccord said Royal Mail could be worth as much as £10bn by 2015 if the company was able to cut 3% of its 150,000 workforce and increase sales by 3%.

"But, the real interest is what if the company could reduce people costs? The operating gearing is massive," it said in the note.

Royal Mail has warned that it will cut an unspecified number of jobs in the next few years. It has already axed 50,000 jobs over the past decade.