Skip to main content
  • Register
  • Help
  • Contact us
  • Log out of your HL account

Royal Mail PLC (RMG) Ordinary GBP0.01

Sell:198.60p Buy:199.05p 0 Change: 7.65p (4.00%)
FTSE 250:0.01%
Market closed Prices as at close on 22 August 2019 Prices delayed by at least 15 minutes | Switch to live prices |
Ex-dividend
Sell:198.60p
Buy:199.05p
Change: 7.65p (4.00%)
Deal now Deal for just £11.95 per trade in a ISA, Lifetime ISA, SIPP or Fund & Share Account
Market closed Prices as at close on 22 August 2019 Prices delayed by at least 15 minutes | Switch to live prices |
Ex-dividend
Sell:198.60p
Buy:199.05p
Change: 7.65p (4.00%)
Market closed Prices as at close on 22 August 2019 Prices delayed by at least 15 minutes | Switch to live prices |
Ex-dividend
Deal now Deal for just £11.95 per trade in a ISA, Lifetime ISA, SIPP or Fund & Share Account
The selling price currently displayed is higher than the buying price. This can occur temporarily for a variety of reasons; shortly before the market opens, after the market closes or because of extraordinary price volatility during the trading day.

HL comment (22 May 2019)

Royal Mail saw underlying revenues rise 2% in 2018, led by a strong result from the international GLS business. Underlying operating profits fell 34% to £376m, as declines in UK letter volumes hit margins and higher margins costs negatively affected the international business too.

The dividend rose 4% this year, with a final dividend of 17p announced alongside results. However, management's desire to increase investment means the full year dividend is being rebased going forwards to 15p a share, with the possibility of additional payouts in years with excess cash flow.

The shares fell 1.4% in early trading, following a fall of 7.7% the previous day.

Our View

Royal Mail's selling point has always been that years of public ownership means it's got plenty of space to become more efficient. That would boost margins - helping profits grow even if revenues struggle.

Disagreements with the unions last year suggested the group might find it harder to deliver the cost savings than expected. And it turns out the cost of averting industrial action has dramatically slowed productivity gains.

Adding to the pain is a letters business which is struggling even more than expected - mainly thanks to a collapse in marketing mail. Nor are cost problems limited to the UK, with rising expenses also denting results in the international parcel business GLS - previously something of a star.

Against that background it's perhaps no surprise that CEO Rico Back has decided drastic action is needed. The group will be automating its UK sorting operations - with a particular focus on improving efficiency in the manual parcels sorting process. Along with existing spending plans, that will see the group invest £1.8bn in the UK postal system over the next 5 years.

The overseas business is also attracting attention, with investment behind organic growth as well as acquisitions. A focus on growing scale in B2B parcels underpins the division's target for revenue of EUR4.5bn by 2023/24.

Unfortunately all that extra investment comes at a price, and the first casualty has been the dividend. The payment to shareholders will be 40% lower next year and the commitment to grow it has been scrapped as well. Although there's theoretically room for additional returns from time to time, don't forget that even the 6.6% yield implied by today's announcement depends on cash coming in as planned.

A balance sheet that's still relatively unburdened by debt is in the group's favour, but these kinds of major organisational restructures are expensive and risky.

Register for updates on Royal Mail

Full Year Results

UKPIL revenues, which includes UK letters and parcels, were flat year-on-year at £7.6bn. Growth in parcels, with volumes up 8% and revenues up 7%, offset increasingly tough trading in the letters business where volumes declined 8%, with revenues down 6%.

Addressed marketing mail continues to be a particularly tough area, reflecting structural decline, economic uncertainty and the effect of GDPR. The combination of reduced volumes and lower than expected productivity gains meant underlying operating profits in the division fell 48% to £234m.

The GLS business saw revenue rise 8% to £2.9bn. However, operating profit for the division fell 9% to £177m, as cost pressures continued to mount in the majority of markets.

Free cash flow turned negative during the year, mainly because of £220m of acquisitions in the GLS business. As a result the Royal Mail finished the year with net debt of £300m, versus net cash of £14m last year.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.


Previous Royal Mail PLC updates

Data policy - All information should be used for indicative purposes only. You should independently check data before making any investment decision. HL cannot guarantee that the data is accurate or complete, and accepts no responsibility for how it may be used.
Deal now Deal for just £11.95 per trade in a ISA, Lifetime ISA, SIPP or Fund & Share Account

The London Stock Exchange does not disclose whether a trade is a buy or a sell so this data is estimated based on the trade price received and the LSE-quoted mid-price at the point the trade is placed. It should only be considered an indication and not a recommendation.

Trades priced above the mid-price at the time the trade is placed are labelled as a buy; those priced below the mid-price are sells; and those priced close to the mid-price or declared late are labelled 'N/A'.