Royal Mail share price continues to struggle
The Royal Mail share price has hit another low in the past week as the value of the company continues to slide. Earlier in the year, the stock hit a high after the privatised national postal supplier delivered excellent end of year results. However, the lustre of those earnings has been dented by a recent profit warning. This has not delighted investors and numerous analysts have changed their advice on Royal Mail shares and are recommending shareholders ‘sell’.
When floated on the stock exchange in 2013 the Royal Mail share price was 455p at the end of the first day trading and earlier this year they topped 631p. At the end of last week they saw a low of 338.90p.
We wrote about that profit warning here. They have let interested parties know that in 2018 they expect a profit of £500m-£550m which is unfavourable compared with £694m from last year.
Royal Mail has tried to reassure investors by saying that it will be examining where it can make savings related to spending including management tiering, head office expense and the like.
One problem that this represents for Royal Mail is that it dents the holdings of Royal Mail staff who all received options during the privatisation process. There are also rumours and rumblings that part of the current problems are related to relations between the higher levels of management, staff in general and also the trade unions.
The big worry as Royal Mail enters the most critical quarter of the year is that there is no disruption to the service. Many businesses, online and otherwise, rely on having their letters and parcels delivered by Royal Mail, especially at this time of year.
But could this also be a portent for price rises from Royal Mail in 2019? Maybe so. And don’t forget that USPS, the USA Royal Mail equivalent, is suffering similar problems and has already asked the regulators there for permission to significantly increase the price of stamps and parcels.
Royal Mail has shot itself in the foot. The profit warning was incredibly cynical and now they’ve (permanently?) lost the confidence of the market.
Its only cynical if the expected profit of £500m-£550m does not happen, they are following the rules set out by the “City”.
“There are also rumours and rumblings that part of the current problems are related to relations between the higher levels of management, staff in general and also the trade unions.”
This has long been the problem with RoyalMail. A unionised workforce that resist all changes and incompetent management that sit in their ivory towers without a clue what the day-to-day challenges are or how to meet the market needs.
For years I have been telling the RoyalMail that their focus on offering incentives for large scale junk mailers was wrong. That is a dying market and they should instead put all their efforts into being the strongest player in small packets for ecommerce as that is where the growth is.
The trouble is they see on their spreadsheet that an individual junk mailer is sending 10 million post items and are bamboozled by that instead of seeing the larger picture and looking after the 100 e-commerce sellers sending 100,000 items.
Royal Mail have containers of mail from China coming into the UK every day that their staff process, by adding UK postal labels to.
Royal Mail have a discounted fee arrangement with Chinese businesses, outside of the postal union agreement. It allows Chinese business post to be processed in the UK for a fraction of the cost that UK customers pay for domestic post.
Royal Mail as a result of this, charge high postal fees for UK domestic mail to subsidise this arrangement. The Chinese mail is processed through the same network as domestic post, but at a reduced price.
So UK retailers with the help of Royal Mail are effectively paying more, to allow Chinese sellers to undercut them and take sales away from them. Retailers like Maplin are a prime example, they closed down due to cheap Chinese imports taking their sales away.
So it comes as no surprise Royal Mail are struggling. For UK customers the service is very expensive and the Chinese retailers are dooming and sending more and more discounted parcels through the Royal Mail network.
As a UK retailer struggling with the growing effect of cheap undeclared goods coming from China via Royal Mails special discounted agreement, I have no sympathy for the struggles Royal Mail are encountering.
While cheap untaxed Chinese items is a big problem that is not what killed Maplin. Private equity loading it with debt that it couldn’t service is what killed it.
The reason RoyalMail has so much post that comes in from China at a below cost rate is because the RoyalMail is signed up to the Universal Postal Union pricing agreement. This was originally meant to be a fair system that allowed poor people from poor countries to send post to rich countries without having to pay a week’s wages for the privilege.
The system has however been abused and yet neither the US, EU or UK governments are doing anything to force a change.
There was an article a month or so ago on either vatfraud or Richard allen’s Ravas twitter feed about Royal Mail having a separate agreement in place with Chinese retailers that was in addition to the UPU agreement. I totally agree with you that the UPU agreement is being abused by China and needs to be dramatically changed to protect US, UK and EU retailers.
Of course Royal Mail tells the general public that profits will not be good this quarter.
I am a full time Postman and see the amount of stuff coming through everyday.
Every year they say that we are seeing a 6% decline in mail volume.
If that were the case after 25 years on the post I should have nothing left in my bag…..!
Go figure! Believe me our bags are still very full, and packets at this time of the year are making our delivery vans look to small.
I was better for them knowing that they could save an awful lot of money by doing a bit of scaremongering, instead of paying out £6.30 a share they could pay £3.50 instead.
RMG will use Brexit as an excuse for price rises in 2019. The whole share drop has been a complete over reaction, with Brexit on the way this is actually a fairly save haven for shares. 345 is a bargain and if my ebay sales had not dived so much this year would be buying.
Mind you it could not have come at a worse time for myself as I was planning to use a fair whack of mine to pay for my wedding next year (I have always bought when they dropped below £4 it is very YO YO)….
They want to sack the current management jobs for the boys, RMG has so much potential that has never been utilised.