Financial Trading Blog

Stock of the day 15/05/2015 – Royal Mail PLC



Will investors want to return Royal Mail to sender following the firm’s full year figures on Thursday?

The Royal Mail’s rather unhappy stock market experience has continued into 2017, with the brunt of its losses coming in January. Having opened at £4.59 the postal service found itself entering February at £4.09, shedding nearly 11% in across the first month of the year.


(Source: IT-Finance.com, 15/05/2017)

Since then the company has lacked any real sense of momentum, shuffling about in a trading bracket that saw it trapped between sub-£4, 27-month lows and an upper-cap of £4.20. In the last few weeks, however, Royal Mail has started to look a bit livelier, hitting a 4 month high of £4.33 on May 12th; it now sits at a current trading price of £4.29 (IT-Finance.com, 15/05/2017).

The reason for that January bloodbath was its post-Christmas update, the reaction to which was responsible for the majority of its early-2017 decline. Though Royal Mail maintained its full year forecasts following a solid holiday season, and stated it was ‘on track to deliver’ the promised £225 million of annual cost savings, two main issues drew investors’ attention.

The first was its flagging letters delivery business, where total revenue dropped 5% as Royal Mail warned that Brexit uncertainty was impacting the already shaky division. Second, and most pressing, was its pension scheme. Royal Mail claimed that if it kept the scheme open over 2018 it would cost the company more than £1 billion a year, and ahead of the January 19th update had announced its intentions to scrap the scheme. Understandably this didn’t go down well, with strikes threatened if a suitable agreement isn’t reached with the unions that represent the postal workers.

This, then, will be the main point of discussion in Thursday’s annual results, investors keen to hear of any progress in the last few months of talks, and the likelihood of a strike being avoided. Elsewhere the size of the decline in the letters business, the pace of the growth of its parcel division and the success of its international operations will be the non-pensions focus.

Royal Mail PLC has a consensus rating of ‘Hold’ with an average target price of £4.64.

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