Royal Mail full-year figures set to disappoint

A year and a half on from its IPO and Royal Mail still has just as many questions hanging over it.

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Source: Bloomberg

On Thursday 21 May Royal Mail is due to announce its full-year figures. The adjusted earnings per share are called to improve from 26.3p up to 32.8p while the sales figures are called to remain broadly flat at £9.437 billion down from £9.456 billion last year. The company’s pre-tax profits have collapsed from £1.666 billion last year to £399.714 million.

Institutional opinion on the company is far from clear, with six buy recommendations, six holds and six sells. The average institutional twelve-month price target for the company is 474p and the current share price of £5 is already at a premium.

The issues that hung over the company when it first floated with an IPO price of 330p still continue to plague the company. The governmental requirement to continue serving the whole of the UK with a letter delivery service has and will continue to be a burden on the business. The fundamental issue is that letters have become increasingly obsolete as a form of communication and with less deliveries to make but the same sized infrastructure to maintain, the cost has exceeded the rate the company can charge.

Developments at Amazon in offering its own delivery service for customers will have been disappointing as this could have been a lucrative stream of business. However the changing demographics of the UK retail consumer should ensure that other avenues materialise in the future.

The last six months have seen the demise of two competitors’ services with City Link closing its parcel business in December while more recently Whistl (formerly TNT post) has ceased its door-to-door letter delivery service in a number of key locations.

The boost that Royal Mail’s shares have received due to issues that competitors have had has seen the stock move into overbought territory, and these next set of figures might see at least a short-term reassessment of value especially as they are already at a premium of the 12-month institutional expectations.

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