After hitting the all-time high of 631.00 pence sterling, Royal Mail stock has been in a downtrend since May 2018. Today, the company’s stock may look quite tempting to invest in due to its low price. However, before making a final decision, it is crucial to understand why the Royal Mail shares have been losing value for over a year now.
In this article, we take a closer look at this 500-year-old company to find out whether the shares are now too cheap to ignore, or Royal Mail has become a business with deep-rooted problems. Keep reading to discover the latest Royal Mail share price forecast for 2019 and beyond.
The basics: everything you need to know about Royal Mail
Royal Mail is a UK-based postal service and courier company, tracing its origins back to 1516. It is an international business, operating across 44 countries worldwide, including Europe, the United States and Canada.
Royal Mail is engaged in developing a modern, optimised and efficient network to deliver parcels, letters and new products, connecting customers, companies and countries.
The company’s two key divisions are known to be UKPIL and GLS.
Trade Royal Mail PLC - RMG CFD
Royal Mail’s UK Parcels, International and Letters business, commonly known as UKPIL, comprises the company’s core UK and international letters and parcels delivery services through the ‘Royal Mail’ and ‘Parcelforce Worldwide’ brands. Throughout the past year, they handled and delivered over 13 billion letters and more than 1.3 billion parcels.
The brand’s contribution to the UK economy, including employment and procurement, totalled £10.3 billion last year in terms of added value.
General Logistics Systems, often shortened to GLS, is a Dutch logistics company, which is a wholly-owned subsidiary of Royal Mail Group. GLS revenue grew from £1 billion in 2001-2002 to £3 billion in 2018-2019, highlighting the strength of its business model. Last year, GLS delivered around 634 million parcels to over 300,000 clients.
In 2019, Royal Mail employs over 162,000 permanent postal workers, of which 143,000 are UK-based roles. The company’s annual revenue for its fiscal year ended on March 31, 2019, was £10.581 billion.
The company's performance in 2019 so far
Both 2018 and 2019 have been challenging years for the company. Trade conditions in the UK, ongoing economic uncertainty around Brexit and the impact of GDPR have only added fuel to the fire. Tight European labour markets created margin pressure for all delivery operators, including GLS.
Although adjusted revenue rose by 2% to £10.581 billion, operating profit dropped by 34% to £376 million. The company’s adjusted operating margin fell from 5.7% to 3.6%.
What is the company’s current outlook?
The market in which Royal Mail operates is changing at a rapid pace. Like many other countries around the globe, the UK is experiencing a decline in postage volumes. At the same time, expansion in e-commerce in the UK and across Europe continues. In fact, the UK has the highest online shopping expenditure per capita in the world, with around 10% of all retail sales done online.
Parcels now account for almost 60% of Royal Mail revenue. However, it is important to remember that although the global parcels market is growing, so does the competition. That is why it's crucial for the company's business business to make significant strategy changes in order to survive and thrive.
The company is striving to stay up-to-date and become more digitally-enabled. For example, in June 2018, Royal Mail launched a new shipping tool "Pro Shipping" to make it simpler for larger retailers to manage orders and returns across distributed sites. In October 2018, the company launched a new mobile app to help its customers track their orders from their smartphones.
Amazon Alexa was integrated with the app in April 2019, allowing clients to quickly track the status of their Royal Mail deliveries by providing Alexa with their tracking number.
On March 31, 2019, along with its fiscal year results, Royal Mail revealed its upgraded five-year turnaround plan. Its new strategy seeks to boost the company’s profitability by diversifying its international operations and reorienting the business around parcel delivery.
The company’s Chief Executive Officer, Rico Back, said: “Our ambition is to build a parcels-led, more balanced and more diversified international business, delivering adjusted Group operating profit margin of over four per cent in 2021-22, increasing to over 5% in 2023-24.”
“At the heart of our refreshed strategy is a UK ‘turnaround and grow’ programme. In 2018-19, after a challenging year, we delivered productivity improvements and cost avoidance in line with our revised expectations. Over the next five years, through a focus on new ways of working and extending our network, we will ensure a contemporary UK Universal Service.”
As part of its UK strategy, the business plans to invest around £1.8 billion in the UK's postal service over the next five years.
“By combining the best of Royal Mail and GLS, we will enhance our cross-border proposition in this large, growing and global market” – Mr Back added.
However, the most important news for the company’s investors may not be as positive. The dividend will be cut from 25p to 15p from this year to free up cash for investment in the next stage of the Royal Mail development. “We are rebasing the dividend and changing our dividend policy. This is not a decision we have taken lightly as we know how important the dividend is to our shareholders. We have sought to find an appropriate balance between sustainable shareholder returns, and investing in the future” – stated the company’s CEO.
The Royal Mail share price trend
The company used to be a public service since its establishment, operating as a state corporation or even a government department. However, due to the Postal Services Act 2011, the Royal Mail shares have been traded on the London Stock Exchange since 2013. The UK government initially held a 30% stake in the company, which they later sold in 2015.
Today, Royal Mail is a constituent of the FTSE 250 Index.
The Royal Mail shares started trading at 455.00p on October 15, 2013, with a market capitalisation of £3.3 billion. The stock then quickly soared, reaching 604.50p by January 12, 2014.
Throughout its history, the company has witnessed many ups and downs. On May 6, 2018, the Royal Mail shares hit an all-time high of 631,00p. However, ever since then it has mainly been in the downtrend, dropping to its lowest on August 11, 2019, when it was valued at 188.40p per share. Its current market cap is £2.223 billion.
So, what does the Royal Mail shares forecast actually look like?
Royal Mail share price forecast: what’s next?
According to the Financial Times, the 14 analysts have offered their own 12-month price targets for Royal Mail. The predictions have a median target of 240.00p, representing a 10.40% increase from the last price of 217.40p. The highest estimate is 325.00p, while the lowest estimate is 150.00p.
So, what are the Royal Mail shares – buy or sell? As of August 30, 2019, the consensus forecast amongst 17 polled investment analysts suggested investors hold their position in the company.
Based on the data provided by Wallet Investor, Royal Mail stock is anticipated to continue the bearish trend. The online forecasting service refers to the company's stock as a potentially “bad, high-risk 1-year investment option”. Taking into consideration their RMG share price forecast, your current investment in the company may be devalued in the foreseeable future.
This is what their Royal Mail share price prediction looks like:
According to the Sharesmagazine.co.uk, here are the latest broker views of the Royal Mail share price outlook:
All in all, is this the right time to buy the company's shares? Based on what the forecasts tell us, it is probably not. However, you can still try to profit from the price volatility through contracts for difference.
How to trade Royal Mail shares CFDs
A contract for difference, or CFD, is an agreement between a broker and an investor to profit from the price difference between the opening and the closing value of the trade. You can either take a long position, speculating that the price will rise, or a short position, speculating that the price will fall. Therefore, no matter whether you have a positive or negative view of the Royal Mail share prediction, you can still try to profit from the future price fluctuations.
So, what is your bet? Will Royal Mail shares go up or keep falling into the abyss of the unknown? Stay up-to-date with the latest RMG share price forecast, and keep track of the prices live with the comprehensive charts on Capital.com.
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