The seemingly endless exercise of democracy in the UK has provided a boost for Royal Mail (RMG). The European parliamentary elections in May helped to arrest the decline in UK letter volumes at 5 per cent, rather than 8 per cent without. The forthcoming general election will provide a boost in the second half, but management warned that letter volumes would continue to dwindle overall and is expecting a drop of 6-8 per cent in the 2020/21 financial year. Technological change, rather than privatisation, has proved to be the primary drag on group performance – although, eventually, it may come to be seen as a double-edged sword.
While people are sending fewer letters, the rise in online shopping is providing the group with another source of income. The growth in parcel revenues was enough to offset the decline in letters during the period, sending the top line up 5.1 per cent to a record £5.2bn in the first half of the year. Management expects this change in traffic to continue, and is planning to invest £1.8bn in transforming the group from “a UK letters company that delivers parcels, into a parcels-led, international company that also delivers letters”.
To do this, Royal Mail has installed parcel automation machines in 16 mail centres. More than a quarter of parcels are now sorted automatically, up from 12 per cent last year. The group also rolled out 1,400 “parcel postboxes” to reflect the changing traffic mix.
However, industrial relations are strained. A disagreement with the Communication Workers Union (CWU) has delayed the implementation of a digital system for clocking in and out and the High Court recently sided with the group’s management in granting an interim injunction to prevent a strike – union members in Royal Mail voted 97.1 per cent for industrial action. Management has said it wants to “enter into discussions with the CWU without preconditions”, but the union has been fighting back – a release following the high court decision said union members were “united in their anger” at the group’s bosses, and it has since appealed the injunction.
The Bloomberg consensus forecast is for adjusted EPS of 23.4p for the March 2020 full year, down from 30.5p in FY2019.
| ROYAL MAIL (RMG) | ||||
| ORD PRICE: | 194p | MARKET VALUE: | £ 1.9bn | |
| TOUCH: | 193.6-194p | 12-MONTH HIGH: | 348p | LOW: 187p |
| DIVIDEND YIELD: | 12.6% | PE RATIO: | 6 | |
| NET ASSET VALUE: | 494p* | NET DEBT**: | 5% | |
| Half-year to 29 Sep | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 4.91 | 33 | 0.5 | 8.0 |
| 2019 | 5.17 | 173 | 15.3 | 7.5 |
| % change | +5 | +424 | +2960 | -6 |
| Ex-div: | 5 Dec | |||
| Payment: | 15 Jan | |||
| *Includes intangible assets of £1bn, or 100p a share **Does not include IFRS 16 lease liabilities of £1.1bn | ||||
