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Royal Mail to deliver latest trading update; UK inflation numbers the key focus

Last updated: 06:00 18 Jul 2017 BST, First published: 12:26 17 Jul 2017 BST

Postal delivery

Investors will be keen to see what Royal Mail Group PLC (LON:RMG) can deliver in a trading update on Tuesday, with the postal firm having been losing market share in parcel deliveries amid rising competition.

The FTSE 100-listed firm has become increasingly reliant on revenue from its parcels division as the advance of the internet means less people are sending letters. 

But fierce rivalry from the likes of Hermes and Yodel has put pressure on the parcels business. Adding to the competition, Amazon has also built its own network to deliver products it sells.

READ: Royal Mail hit by fresh opposition from union over proposed new pension schemes

In a recent note, Liberum analyst Gerald Khoo said: “We still believe Royal Mail will continue to lose market share in Parcels, with weaker exposure to the fastest growing segments”

He added: “Our concerns on productivity have risen, with parcel trends a headwind and past success driving toughening comparatives.”

The Liberum analyst cut his Royal Mail earnings per share forecast for fiscal year 2018 by 13% and reduced the share price target, saying:  “We believe Royal Mail will not be able to fully offset the structural decline in letter revenue with growth in parcels, and that it will struggle to bridge the gap with productivity improvements as it faces headwinds from higher workloads on parcels and against toughening comparatives.”

The number of packages and parcels in the UK grew by 65% to 2.8bn between 2012 and 2016, according to a recent report by market research firm, Mintel, but by comparison, Royal Mail’s volumes grew by just 8% between March 2013 and 2017.

Production news eyed from Rio Tinto

After a disappointing first-quarter production update in April, investors will be hoping mining giant Rio Tinto PLC (LON:RIO) can balance another pullback in commodity prices during the second quarter with more progress on cost reductions.

Rio cut its 2017 guidance for copper production in April after first quarter operations were hit by a 43-day strike at a mine in Chile.

READ: Rio Tinto cuts full year copper production guidance

However, the miner’s other key commodity, iron ore saw a better operational performance and there is some expectation that this will follow through into the latest quarter.

Inflation remains close to Bank of England target

Away from the corporate diary, the bigger focus will be the latest UK inflation numbers, which could edge higher once again, with the consumer price index having hit 2.9% in May, the highest level since June 2013.

Think-tank the NIESR expects UK inflation to hit 4% at some stage in 2017, and while the Bank of England is less aggressive, seeing the peak at just under 3%, it has warned of how inflation could start to crimp the consumer spending which has done so much to power the UK economy over the past few years.

The key may be to look beyond the headline CPI numbers and focus on producer prices (wholesale inflation) as these may give an indication of what is coming down the food chain.

Significant events expected on Tuesday July 18:

Operational review: Rio Tinto PLC (LON:RIO)

Trading updates: Alliance Pharma plc (LON:APH), British Land Company PLC (LON:BLND), Clinigen Group PLC (LON:CLIN), DotDigital Group PLC (LON:DOTD), EMIS Group PLC (LON:EMIS), Experian PLC (LON:EXPN), Royal Mail Group PLC (LON:RMG), Safestyle UK PLC (LON:SFE)

Finals: Casleton Technology PLC (LON: CTP); Ideagen plc (LON:IDEA), IG Group Holdings PLC (LON:IGG), NCC Group PLC (LON:NCC)

Interims: Synectics PLC (LON:SNX)

Economics: UK June inflation numbers

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