As if Royal Mail (RMG) wasn't already faced with a structural decline in letter volumes (e-substitution etc), this month will see the new General Data Protection Regulations (GDPR) come into force. They've been designed to give individuals better control over how their personal information is used, which could make it more difficult for companies to mail out marketing information. Management expects the new rules will contribute to an annual decline in volumes at the upper end of an expected range of 4-6 per cent over the medium term. The steep rate of decline reflects the fact that the UK has one of the highest per capita rates of mail usage - there's simply further to fall. It's worth noting that unaddressed letter volumes, up 6 per cent year-on-year, have proved resilient partly as a consequence of marketing mail-shots, but this is obviously an area that will take a hit from GDPR.
The volume of addressed letters sent fell by 5 per cent to 11.3bn. And despite a boost from political mailings around the general election, total letter revenue fell by 4 per cent to £4.2bn. Royal Mail is attempting to encourage companies to continue to send letters with its “Scheme for Growth”, by offering discounts on incremental volumes.
The parcel and international logistics systems (GLS) business continues to be the bright spot in Royal Mail results, with underlying sales up 10 per cent to £2.6bn on the back of a 9 per cent increase in volumes. In February it bought Spanish express parcels delivery company Redyser Transporte, which will make GLS the country’s second largest national express parcels network. However, management pointed out that the parcels business is facing ever more competition, with at least 15 operators in the UK alone.
Analysts at Liberum expect pre-tax profits of £507m in the year to March 2019 giving EPS of 40p, falling to £505m and 39.8p in FY2020.
| ROYAL MAIL (RMG) | ||||
| ORD PRICE: | 567p | MARKET VALUE: | £ 5.67bn | |
| TOUCH: | 567-567.4p | 12-MONTH HIGH: | 633p | LOW: 368p |
| DIVIDEND YIELD: | 4.2% | PE RATIO: | 22 | |
| NET ASSET VALUE: | 444p | NET CASH: | £14m | |
| Year to 31 Mar | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 9.4 | 1.66 | 128.0 | 13.3 |
| 2015 | 9.3 | 0.40 | 32.5 | 21.0 |
| 2016 | 9.3 | 0.27 | 21.5 | 22.1 |
| 2017 | 9.8 | 335 | 27.5 | 23.0 |
| 2018 | 10.2 | 212 | 25.9 | 24.0 |
| % change | +4 | -37 | -6 | +4 |
| Ex-div: | 26 Jul | |||
| Payment: | 31 Aug |
