Royal Mail share price: what’s next as stock continues to slide?

Over the last 12 months, the British postal service has seen its stock lose more than half its value, dipping well below its IPO price with little signs of the slide stopping anytime soon.

Royal Mail has seen its share price slide by more than 50% over the last 12 months, slipping well below its IPO price of 330p which it debuted at on the London Stock Exchange back in 2014.

The company’s share price sits at 208p a share as of 11:15 GMT on Wednesday, with the stock looking likely to fall further in the second half of 2019.

Royal Mail continues to hit new record lows

With each passing month, Royal Mail’s share price hits a new record low, with analysts unsure of where the stock will find support from the market.

Back in June, Deutsche Bank analysts gave rated the stock ‘overvalued’, adding that there was ‘no easy short-/medium-term fixes’ it could see that would stop its share price from falling further.

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Letter volume decline hits Royal Mail hard

Overall, the company’s performance in the first three months of this financial year has been in line with its expectations, but the postal service continues to suffer from dwindling letter volumes as consumers and businesses shift to ‘e-substitutes’ like email.

Letters volume fell by 8% in the year to March, while total letter revenues dropped 6%. To make matters worse, a recent Royal Mail-commissioned PwC report forecast that letter volumes will slide on average by 4.6% per annum to 2028. In real terms, that is a decline from 10.3 billion letters a year in 2018 to just 6.2 billion in 2028.

The decline in letter volumes in the years ahead is adding pressure on Royal Mail’s share price and overall performance, with it forced to make massive cost reductions to offset declining profits from letters.

Back in October, when Royal Mail issued a profit warning that triggered its stock to lose more than 20% of its value, the postal service lowered its cost savings target from £230 million to just £100 million, which is simply not enough to offset declining profits driven by falling letter volumes.

‘Those efficiency gains remain central to the Royal Mail investment story, and if they can’t be delivered then there’s nothing to protect the group from the pains of an economic downturn in the UK,’ Hargreaves Lansdown analyst Nicholas Hyett told investors.

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