Royal Mail in fresh plunge to record low

It’s bad to worse for the nation’s best-known postie. Our head of markets explains the latest 11% drop.

Royal Mail (LSE:RMG) has had a torrid time of late and this update will do little to assuage investors’ embedded concerns.

The clock is already ticking with the group’s 2024 transformation plan yet to begin in earnest. This comes at a time when competition is sharpening its claws as fulfilment of online shopping orders continues its relentless pace. 

Quite apart from the increasingly challenging landscape, there is an additional headache for Royal Mail from the ongoing industrial relations spat on two fronts. 

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Firstly, the distraction has held back the already delayed transformation plan and secondly, as evidenced during the Black Friday/Cyber Monday and Christmas periods, there was evidence of customers switching to other carriers at the very thought of potential industrial action. 

This adds to a letters market in terminal decline, and the group is suggesting that this may even be accelerating slightly, when the booster effects of one-off events such as the General Election are excluded. Letter volumes declined 9% in the period and revenues 1.5%, with the outlook looking equally bleak. 

Source: TradingView Past performance is not a guide to future performance

It seems that Royal Mail will need to hang its hat on consolidating its parcel business. Even here, the threat of strike action may drive the core UK parcels business to a loss in the very near future, even if for this period guidance to the adjusted operating profit range is unchanged. 

The international part of the group is faring rather better, with a 11.1% increase in revenues at its GLS unit driven by some success from the likes of Canada, Germany and Belgium. 

Meanwhile, overall group revenues increased by 3.7% despite the company’s travails, and parcel revenue growth did at least offset the letters decline. The January parcels performance is estimated to be stronger than the previous third quarter, and in the meantime a projected dividend yield – even after the previous cut – of 7.7% is of some solace to long-suffering investors.

Even so, in terms of the company rhetoric, there is a feeling of déjà vu. The market, increasingly running out of patience in awaiting the turnaround (if it has not already done so) has reacted negatively to another uninspiring update. 

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Royal Mail’s hope must be that it can begin to display some material progress as opposed to strategically clutching at straws. The company has been a serial underperformer since its IPO in 2013. Over the last two years, for example, the shares have plunged 63%, and just over the last year a decline of 34% compares to a gain of 13% for the wider FTSE 250 index. 

Investors may have been hoping for brighter news in this update, but it has failed to materialise once more. As such, there is unfortunately little reason to suspect that the market consensus of the shares as a “sell” is likely to improve for the foreseeable future.