Proactiveinvestors United Kingdom Royal Mail PLC https://www.proactiveinvestors.co.uk Proactiveinvestors United Kingdom Royal Mail PLC RSS feed en Fri, 19 Jul 2019 05:03:37 +0100 http://blogs.law.harvard.edu/tech/rss Genera CMS action@proactiveinvestors.com (Proactiveinvestors) action@proactiveinvestors.com (Proactiveinvestors) <![CDATA[RNS press release - Result of AGM ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190718135833_14154997/ Thu, 18 Jul 2019 13:58:33 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190718135833_14154997/ <![CDATA[RNS press release - AGM Statement ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190718070005_14153748/ Thu, 18 Jul 2019 07:00:05 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190718070005_14153748/ <![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190716160001_14151715/ Tue, 16 Jul 2019 16:00:01 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190716160001_14151715/ <![CDATA[RNS press release - Holding(s) in Company ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190624150325_14122268/ Mon, 24 Jun 2019 15:03:25 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190624150325_14122268/ <![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190618153001_14115529/ Tue, 18 Jun 2019 15:30:01 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190618153001_14115529/ <![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190618142347_14115430/ Tue, 18 Jun 2019 14:23:47 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190618142347_14115430/ <![CDATA[RNS press release - Annual Report and Notice of AGM ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190614110005_14111635/ Fri, 14 Jun 2019 11:00:05 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190614110005_14111635/ <![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190605101222_14099451/ Wed, 05 Jun 2019 10:12:22 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190605101222_14099451/ <![CDATA[News - Royal Mail shares are 'overvalued', says Deutsche Bank as it cuts target price ]]> https://www.proactiveinvestors.co.uk/companies/news/221467/royal-mail-shares-are--overvalued--says-deutsche-bank-as-it-cuts-target-price-221467.html Royal Mail Group PLC (LON:RMG) shares are “overvalued”, Deutsche Bank said as it repeated a ‘sell’ rating and cut its target price to 150p from 180p.

Deutsche Bank said Royal Mail’s shares may look like a ‘buy’ as the company expects a significant rebound in profits and cash flow as part of its five-year strategic plan.

READ: Royal Mail plans 40% dividend cut to pay for next stage of turnaround

“But in our view there are no easy short-/medium-term fixes for the Royal Mail as the business model is largely a fixed cost business, that is facing a material decline in letter volumes and has a unionised workforce,” the bank said.

Last month, Royal Mail posted a 30% drop in adjusted pre-tax profit to £398mln on revenue up 2% to £10.58bn for the year to the end of March.

The UK parcel and letters division, UKPIL, generated flat sales of £7.6bn as parcel revenue rose 7% on volumes up 8%, offset by letter revenue falling 6% as volumes declined 8%.

Dividend yield 'looks expensive' against nearest peers

Royal Mail raised its dividend by 4% to 25p per share but said it could cut the payout to 15p per share from 2019-20 to help pay for its new turnaround strategy.

Deutsche Bank noted that setting a 15p dividend for the next five years puts the stock on a circa 7% dividend yield, which in its analysts view looks expensive against the UK firm's nearest peers Bpost and PostNL, with arguably both those companies further down the line in terms of restructuring than Royal Mail.

Royal Mail’s new strategy is to broadly double operating profit over the next four years after it has fallen to a range of £300-340mln from £376mln in 2018-19.

Deutsche Bank expects Royal Mail to post an operating profit of £420mln for 2023-24, compared to the company’s implied guidance of £600mln.

Union pressures to hamper profits 

The investment bank said Royal Mail’s discussions with the Communication Workers Union will start shortly and given that management expects a sharp increase in profitability, it may be hard for the company to push back on the union’s demands for improved pay and conditions for their members.

“When we look back over history at other European postal operators (e.g., Deutsche Post), we find that when a postal company is in restructuring mode, shareholders are typically not at the top of the stakeholder lists (e.g., Royal Mail dividend cut to 15p) as cash flows get diverted to the employees, complex restructuring/modernisation and M&A,” Deutsche Bank said.

“This has resulted in periods of material share price underperformance.”

'Light-touch' regulations mean Royal Mail could raise prices 

On the outlook for Royal Mail, Deutsche Bank said the structural decline in addressed mail volumes will persist as volumes continue to shift to e-commerce channels.

However, the bank believes Royal Mail has a “light-touch regulatory framework” with only 5% of revenues subject to direct price controls.

For this reason, Deutsche Bank thinks the decline in addressed letter volumes needs to be mitigated by stamp price increases, the ability to transform and significantly improve efficiency and growth from both the UK and European parcels businesses.

“But improving cash flow and profitability at the RMG is in our view hard as the business is largely a fixed cost business and unionised,” it added.

“We think that it is more difficult to modernise and take costs out of the business in an environment where GDP growth is weak and wage bill pressures persist due to low unemployment rates.”

In morning trading, Royal Mail shares were up 3.6% to 201.6p.

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Tue, 04 Jun 2019 09:59:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/221467/royal-mail-shares-are--overvalued--says-deutsche-bank-as-it-cuts-target-price-221467.html
<![CDATA[News - Low UK productivity “biggest challenge” for Royal Mail, says Jefferies ]]> https://www.proactiveinvestors.co.uk/companies/news/221392/low-uk-productivity-biggest-challenge-for-royal-mail-says-jefferies-221392.html The biggest challenge facing FTSE 250 post carrier Royal Mail PLC (LON:RMG) is its low productivity in the UK according to analysts at Jefferies, who on Monday cut their target price for the firm to 170p from 220p.

In a note, the New York-based broker said the group’s UK productivity was 50% below the sector average, resulting in profitability that was 70% below average.

READ: Royal Mail upgraded to ‘hold’ by Liberum on “improved” strategy, but broker cautions on execution risks

Royal Mail’s five-year turnaround plan to boost profitability, unveiled at its full-year results in May, is seeking to reorient the business to be more focused on parcel delivery as well as diversifying its international business.

As part of an effort to fund the restructuring, the company has said it will cut its total dividend for the current year to 15p per share from 25p per share the year before.

However, Jefferies said the company’s target improvements in productivity were back-end loaded and “unlikely” to mitigate rising inflation in people costs, which are expected to increase by over 5% in the near term following a labour agreement last year to reduce the working week to 37 hours.

The broker said an expected acceleration in top-line growth to 2%-3%, with a return to growth from the UK parcels and letter division, could support profitability, but this was dependent on a number of “uncertain” external factors such as Brexit, parcel overcapacity and increasing e-substitution (using electronic communication instead of physical mail).

Overall, Jefferies' analysts were “cautious” on Royal Mail and reiterated their ‘underperform’ rating on the stock alongside the target price cut, citing increasing near-term margin pressures and a risk of re-nationalisation that was likely to keep any potential investors on the sidelines.

The target cut follows a similar move by analysts at Liberum in mid-May, who chopped their target price to 185p from 240p saying that there could be share price upside if the turnaround was successful, though adding that things would get worse before they got better.

Royal Mail shares were sluggish in lunchtime trading on Monday, down 2.1% at 200.8p, albeit 15% above Jefferies new target price.

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Mon, 03 Jun 2019 12:51:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/221392/low-uk-productivity-biggest-challenge-for-royal-mail-says-jefferies-221392.html
<![CDATA[RNS press release - Directorate Change ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190530151647_14092909/ Thu, 30 May 2019 15:16:47 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190530151647_14092909/ <![CDATA[RNS press release - Holding(s) in Company ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190529174625_14091443/ Wed, 29 May 2019 17:46:25 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190529174625_14091443/ <![CDATA[RNS press release - Holding(s) in Company ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190529143210_14091194/ Wed, 29 May 2019 14:32:10 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190529143210_14091194/ <![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190528142226_14089495/ Tue, 28 May 2019 14:22:26 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190528142226_14089495/ <![CDATA[News - Royal Mail upgraded to ‘hold’ by Liberum on “improved” strategy, but broker cautions on execution risks ]]> https://www.proactiveinvestors.co.uk/companies/news/220923/royal-mail-upgraded-to-hold-by-liberum-on-improved-strategy-but-broker-cautions-on-execution-risks-220923.html Royal Mail PLC (LON:RMG) has been upgraded to ‘hold’ from ‘sell’ by analysts at Liberum Capital after the broker said the FTSE 100 firm’s turnaround plan, unveiled with its full year results on Wednesday, was an “improved strategic direction” but cautioned that the execution risks would be significant.

The analysts also cut their target price for the FTSE 250-listed firm to 185p from 240p, saying there could be more downside risk to the shares in the short term.

READ: Royal Mail plans 40% dividend cut to pay for next stage of turnaround

In a note to clients, the analysts said the turnaround of the firm’s UK parcels, international and letters division (UKPIL) was the “most crucial” element of the strategy, although the need to potentially cut jobs in order to reap the required productivity improvements could lead to issues with trade unions.

They added that plans for three new hubs to improve deliveries was a “substantial” endeavour and the operational changes carried execution risk.

However, Liberum's analysts said that if the turnaround was successful there was upside potential in the shares, though things would get worse before they got better.

“Royal Mail is at the beginning of another major multi-year transformation project in its UK operations. While the group has a strong track record of constant reinvention, the challenges and execution risks it faces are substantial. The pain is front end loaded, while many of the gains are back end loaded," they added.

The analysts also said that despite its cautious outlook, Royal Mail shares now seem “fairly valued” given the risks, justifying its upgraded rating.

In early trading on Friday, Royal Mail shares were up 3% at 203.8p.

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Fri, 24 May 2019 09:42:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/220923/royal-mail-upgraded-to-hold-by-liberum-on-improved-strategy-but-broker-cautions-on-execution-risks-220923.html
<![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190523180243_14085903/ Thu, 23 May 2019 18:02:43 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190523180243_14085903/ <![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190523180143_14085901/ Thu, 23 May 2019 18:01:43 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190523180143_14085901/ <![CDATA[RNS press release - Replacement - Full Year Results 2018-19 ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190522105334_14083577/ Wed, 22 May 2019 10:53:34 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190522105334_14083577/ <![CDATA[News - Royal Mail plans 40% dividend cut to pay for next stage of turnaround ]]> https://www.proactiveinvestors.co.uk/companies/news/220752/royal-mail-plans-40-dividend-cut-to-pay-for-next-stage-of-turnaround-220752.html Royal Mail PLC (LON:RMG) will trim its dividend 40% to pay for a new “turnaround and grow” strategy after a year when profits fell by 30%.

On revenues up 2% to £10.58bn in the 53 weeks to end-March, adjusted profit before tax dwindled to £398mln versus £565mln the year before, even though transformation costs came in at £133mln versus expectations of around £150mln. Operating profits of £376mln were, however, much better than the £355mln expected by analysts after October's profit warning.

READ: Amazon’s recent delivery expansion is bad news for Royal Mail, says UBS

The UK parcel and letters division, UKPIL, generated flat sales of £7.6bn as parcel revenue rose 7% on volumes up 8%, offset by letter revenue falling 6% as volumes declined 8%, which was in line with reduced guidance from earlier in the year. 

International parcels arm GLS increased revenues 8% to £2.9bn on volume growth of 5%, with operating profit down 9% amid cost pressures in Europe and tough competition in the US.

Presenting the group’s “refreshed” five-year strategy, chief executive 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 4% in 2021-22, increasing to over 5% in 2023-24."

After softening the blow slightly with these growth targets and a 4% increase in the 2018-19 dividend to 25p per share, he said the new policy from 2019-20 will be for a full year dividend of 15p per share with potential additional payouts in years where there is “substantial excess cashflow”.

This will allow investment in the business, including in rolling out 1,400 parcel postboxes by the end of the new trading year and introducing a second daily parcel delivery service for next-day orders to help Royal Mail compete with more nimble rivals.

CEO Back said: “The investment in the UK, and expected lower cash flow in the early years, means 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.”

Mixed reaction

Broker Liberum said the results were in line with market consensus with guidance for 2020 consistent with current consensus.

"Our view on the new strategic plan is mixed. There appears to be more emphasis on revenue growth than cost control than we believe is deliverable or desirable, although we accept that management's options are constrained."

Analysts said their overall initial reaction was that "punches have been pulled" as avoiding major job cuts was "understandable given the risk of an adverse union reaction, but with staff costs circa 70% of UKPIL costs this would seem to be dodging the main issue".

Russ Mould, investment director at AJ Bell, said Royal Mail had not flagged its dividend cut, unlike some of its FTSE 350 peers, though its recent dividend yield of almost 12% looked too good to be true.

“The cut is therefore another timely reminder to investors to think about how much risk they are taking with their capital when they look for income. The yield was so high because the market was – politely – suggesting that earnings and dividend forecasts were too optimistic and therefore demanding a very high yield in compensation for the risks associated with holding the paper."

Royal Mail shares were up more than 6% to 225.3p by Wednesday afternoon.

-- Adds broker comment and share price --

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Wed, 22 May 2019 07:49:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/220752/royal-mail-plans-40-dividend-cut-to-pay-for-next-stage-of-turnaround-220752.html
<![CDATA[RNS press release - Directorate Change ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190522070201_14082766/ Wed, 22 May 2019 07:02:01 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190522070201_14082766/ <![CDATA[RNS press release - Changes in External Reporting ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190522070101_14082769/ Wed, 22 May 2019 07:01:01 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190522070101_14082769/ <![CDATA[RNS press release - Royal Mail plc Full Year Results 2018-19 ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190522070005_14082697/ Wed, 22 May 2019 07:00:05 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190522070005_14082697/ <![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190517090001_14078197/ Fri, 17 May 2019 09:00:01 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190517090001_14078197/ <![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190417101502_14044606/ Wed, 17 Apr 2019 10:15:02 +0100 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190417101502_14044606/ <![CDATA[News - Royal Mail upgraded to ‘hold’ from ‘sell’ by Berenberg on valuation grounds ]]> https://www.proactiveinvestors.co.uk/companies/news/217636/royal-mail-upgraded-to-hold-from-sell-by-berenberg-on-valuation-grounds-217636.html Berenberg has raised its rating for Royal Mail Group PLC (LON:RMG) to ‘hold’ from ‘sell’ on valuation grounds in a review of the European parcel delivery sector.

The German bank trimmed its target price for the FTSE 250-listed firm to 240p from 250p, with the shares currently trading at 243.50p, up 2.2% on Friday’s close.

READ: Amazon’s recent delivery expansion is bad news for Royal Mail, says UBS

In the note to clients, Berenberg's analysts noted that survey data indicates that growth may slow somewhat in 2019 in the European parcel markets but respondents still are planning for around 6% volume growth this year.

They pointed out that Royal Mail's letter volumes are likely to decline in full-year 2020, while its competitive position is precarious in parcels, but they think the stock is now looking fairly valued.

Elsewhere in the sector, Berenberg’s analysts upgraded their ratings for both Dutch firm PostNL and US group United Parcel Services Inc. (NYSE:UPS) to ‘buy’.

However, they cut their stance on FedEx Corp (NYSE:FDX) to ‘hold’, which has been outperforming, due to the EU market slowdown and indigestion from its acquisition of TNT Express.

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Mon, 01 Apr 2019 11:36:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/217636/royal-mail-upgraded-to-hold-from-sell-by-berenberg-on-valuation-grounds-217636.html
<![CDATA[News - Royal Mail appoints former British Airways boss as new chairman ]]> https://www.proactiveinvestors.co.uk/companies/news/217002/royal-mail-appoints-former-british-airways-boss-as-new-chairman-217002.html Royal Mail Group PLC (LON:RMG) has appointed former British Airways boss Keith Williams as its new chairman to help the postal operator tackle falling letter volumes and slowing parcel deliveries.  

Williams, who was taken on as deputy chairman in November and joined the board in January, will become chairman on May 22 after the company’s full-year results.

READ: Royal Mail expects letter volumes to miss forecasts and parcel deliveries to slow in 2020

He joins the company from Aviva PLC (LON:AV) where he was chair of the audit committee.

Williams previously worked at British Airways, owned by International Consolidated Airlines Group PLC (LON:IAG), for 18 years from 1998. He spent five years as chief financial officer, three years as chief executive and two years as executive chairman.

He became chief executive of British Airways in 2011 when it merged with Spanish carrier Iberia to form International Consolidated Airlines Group.

In 2016, he left the airline to become the deputy chairman of John Lewis.

Williams replaces Les Owen, who has been chairman since September when he took over the reins from Peter Long.  Long left after three years in the role following a backlash over his pay.

Royal Mail has previously said it expected Owen to remain chair for about 12-18 months, which would give it plenty of time to refresh skills on the board and line up his successor.

 "Our external search has confirmed that Keith Williams is the right person to chair the Royal Mail Group through a significant period of change,” Royal Mail senior independent director, Orna Ni-Chionna, said in Friday’s announcement.

“The company will benefit from his strong leadership skills, and his industrial relations, operational and strategic expertise.”

In January, Royal Mail cut the upper range of its 2019 profit guidance and expects letter volumes next year to decline more than previously estimated and parcel deliveries to slow.

The postal operator has been struggling with falling letter volumes as more consumers and businesses switch to electronic communication. The parcels business has been hit by tough competition from the likes of Amazon, DPD and Hermes.  

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Fri, 22 Mar 2019 07:42:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/217002/royal-mail-appoints-former-british-airways-boss-as-new-chairman-217002.html
<![CDATA[RNS press release - Directorate Change ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190322070005_14011733/ Fri, 22 Mar 2019 07:00:05 +0000 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190322070005_14011733/ <![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190318165036_14006354/ Mon, 18 Mar 2019 16:50:36 +0000 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190318165036_14006354/ <![CDATA[RNS press release - Holding(s) in Company ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190315105322_14004158/ Fri, 15 Mar 2019 10:53:22 +0000 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190315105322_14004158/ <![CDATA[RNS press release - Holding(s) in Company ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190313135122_14001089/ Wed, 13 Mar 2019 13:51:22 +0000 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190313135122_14001089/ <![CDATA[RNS press release - Holding(s) in Company ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190301091657_13987018/ Fri, 01 Mar 2019 09:16:57 +0000 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190301091657_13987018/ <![CDATA[RNS press release - Holding(s) in Company ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190226095130_13981958/ Tue, 26 Feb 2019 09:51:30 +0000 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190226095130_13981958/ <![CDATA[RNS press release - Holding(s) in Company ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190221171220_13977837/ Thu, 21 Feb 2019 17:12:20 +0000 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190221171220_13977837/ <![CDATA[RNS press release - Holding(s) in Company ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190221170553_13977824/ Thu, 21 Feb 2019 17:05:53 +0000 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190221170553_13977824/ <![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190219171556_13974720/ Tue, 19 Feb 2019 17:15:56 +0000 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190219171556_13974720/ <![CDATA[News - Royal Mail weak as Morgan Stanley cuts its rating to ‘equal-weight’ from ‘overweight’, reduces price target ]]> https://www.proactiveinvestors.co.uk/companies/news/214648/royal-mail-weak-as-morgan-stanley-cuts-its-rating-to-equal-weight-from-overweight-reduces-price-target-214648.html Morgan Stanley has downgraded its rating for Royal Mail PLC (LON:RMG) to ‘equal-weight’ from ‘overweight’ after cutting its share price target and estimates for the postal delivery firm.

The US investment bank reduced its target price for the FTSE 250-listed stock to 270p, down from 370p previously, with the shares currently trading at 276.60p, down 0.3% on Wednesday’s close.

READ: Royal Mail expects letter volumes to miss forecasts and parcel deliveries to slow in 2020

In a note to clients, Morgan Stanley’s analysts said the target cut reflects adjustments for the pressure on letter volumes and a lower dividend pay-out assumption.

They pointed out they have increased their estimates for letter mail volume decline to -8% from -7% for full-year 2019, and to  -7.5% from -6% for full-year 2020.

The analysts said they also cut their forecast for Royal Mail’s underlying earnings by 1% to £511mln, from £519mln for full-year 2019, and by 6% to £499mln from £543mln for full-year 2020.

They also reduced their pay-out ratio forecast to 80%, down from 100%, in-line with the average historical pay-out ratio.

They concluded: “While dividend growth remains unclear, the shares now reflect risks to EBIT growth, move to equal-weight.”

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Thu, 14 Feb 2019 13:37:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/214648/royal-mail-weak-as-morgan-stanley-cuts-its-rating-to-equal-weight-from-overweight-reduces-price-target-214648.html
<![CDATA[RNS press release - Holding(s) in Company ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190214122216_13969849/ Thu, 14 Feb 2019 12:22:16 +0000 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190214122216_13969849/ <![CDATA[RNS press release - Holding(s) in Company ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190212091813_13966312/ Tue, 12 Feb 2019 09:18:13 +0000 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190212091813_13966312/ <![CDATA[News - Amazon’s recent delivery expansion is bad news for Royal Mail, says UBS ]]> https://www.proactiveinvestors.co.uk/companies/news/214358/amazons-recent-delivery-expansion-is-bad-news-for-royal-mail-says-ubs-214358.html UBS has slashed its price target for Royal Mail PLC (LON:RMG) as competition from e-commerce giant Amazon.com Inc (NASDAQ:AMZN) keeps a lid on parcel prices.

Amazon’s share of the UK delivery market has more than doubled over the past five years to 7% last year, up from 3% in 2013.

Last year it delivered 20mln more parcels than it did in 2017 and now has a similar UK coverage to other, more established delivery firms.

READ: Deutsche Bank cuts Royal Mail price target

“We believe part of the reason why UK parcel prices are not rising…is partly down to the number of competitors in the market,” said a note from analysts on Monday.

The Swiss bank had expected parcel prices to at least stay the same over the next few years, although it now reckons they will fall 1% a year from 2020.

Separately, UBS also notes that Amazon’s delivery service is much cheaper than Royal Mail for parcels over 2kg in weight.

“We believe that in order to become competitive with [Amazon] (and its peers) at heavier parcel weights RMG will need to find ways of reducing its cost of parcel fulfilment.

“How to do this is likely to be a key part of the strategy review underway and should be addressed in the Capital Markets Day to be held after its results in May.”

Price target slashed

Despite this, the analysts highlight that Royal Mail still has the best reach of any UK delivery company: 99.9% of the population is within 30 minutes’ drive of a Royal Mail delivery facility.

“For a truly universal service RMG remains a key operator and we would see Amazon remaining a key customer for the foreseeable future,” UBS added.

Still, that wasn’t enough for the analysts to maintain their previous price target, which they have chopped from a bullish 354p right down to 282p. They did repeat their ‘neutral’ stance, however.

Royal Mail shares were up 0.4% to 272.4p on Monday morning.

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Mon, 11 Feb 2019 11:16:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/214358/amazons-recent-delivery-expansion-is-bad-news-for-royal-mail-says-ubs-214358.html
<![CDATA[News - Deutsche Bank cuts Royal Mail target price as it warns dividend is “unsustainable” ]]> https://www.proactiveinvestors.co.uk/companies/news/214274/deutsche-bank-cuts-royal-mail-target-price-as-it-warns-dividend-is-unsustainable-214274.html Deutsche Bank has once again reiterated its belief that Royal Mail PLC’s (LON:RMG) current dividend is “unsustainable” and should be cut.

In last week’s third-quarter results, the postal giant cut the upper range of its 2019 profit forecast on expectations that letter volumes will decline more than previously estimated, while parcel deliveries will slow, too.

READ: Deutsche Bank cuts Royal Mail target price

With a rebound in profit or cash flow looking unlikely any time soon, Deutsche Bank warned again that the dividend is now facing the chop as it cut its own divi predictions.

“We cut our 2019/20E dividend using what we think is a more sustainable dividend pay-out ratio of 70% of earnings,” read a note to clients.

Analysts at the German investment bank also chopped the price target to 180p from 250p – implying a 35% downside from the current market price of 278.2p.

Liberum looking for a cut, too

Deutsche Bank isn’t the only one tipping a dividend cut; City broker Liberum said in a note last week that it, too, is expecting one.

“The annual cash cost of more than £240m could go a long way to funding a restructuring programme,” said Liberum.

“We think it is unlikely that the dividend will be suspended altogether, although that cannot be ruled out.”

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Fri, 08 Feb 2019 13:01:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/214274/deutsche-bank-cuts-royal-mail-target-price-as-it-warns-dividend-is-unsustainable-214274.html
<![CDATA[News - Royal Mail set to announce significant dividend cut, Liberum predicts ]]> https://www.proactiveinvestors.co.uk/companies/news/213716/royal-mail-set-to-announce-significant-dividend-cut-liberum-predicts-213716.html Royal Mail Group PLC (LON:RMG) is likely to announce a "significant dividend cut" as it faces major strategic and structural challenges, Liberum said.

The postal operator on Tuesday cut the upper range of its 2019 profit guidance as it continued to struggle with falling letter volumes. It also warned that next year, it expects letter volumes to decline more than previously estimated and parcel deliveries to slow.

Liberum repeated a ‘sell’ recommendation for the shares and cut its target price to 240p from 269p, saying revenue continues to be stagnant as accelerating declines in letters offset growth in parcels.

READ: Royal Mail expects letter volumes to miss forecasts and parcel deliveries to slow in 2020

In the first nine months of 2019, total revenue rose 2%, which comprised of a 6% drop in letters, a 6% increase in UK parcels and an 8% increase in the international arm Global Logistics Systems (GLS).

GLS continued to face cost pressures in Europe and the US, amid tough competition but cost savings and pricing initiatives mean the firm continues to target an adjusted operating profit margin of more than 6% for the year.

Productivity remains 'biggest challenge' for Royal Mail

Liberum also pointed out that productivity delivery failures have seen costs rise to squeeze margins.

Royal Mail had hoped that a deal with the Communication Workers Union on pay and pensions would have boosted productivity but it is yet to see any improvements. In the first half, productivity fell 0.2%, well below target, leading the company to say it now expects its performance for the year to be ”significantly below” its original estimate, which was towards the upper end of 2% to 3%.

In Tuesday’s trading update, Royal Mail said its assessment of the productivity and efficiency opportunities under its agreement with the CWU and through its UK network review were ongoing. “The findings from these reviews will help to inform the financial framework of our strategic plan,” it said.

Liberum believes productivity remains its biggest challenge.

“The productivity improvements that kept the cost base stable to defend UK margins in the past have stalled,” it said.

“Even if the previous run rate of 2-3% annual improvements can be restored, which is by no means certain, we see this as a speed limit to productivity gains that cannot be exceeded with incremental measures. In turn, this means the margin shortfall cannot be reversed.”

Liberum thinks Royal Mail should use cash to fund restructuring instead of dividend 

The broker thinks the dividend is unsustainable, given that the current commitment represents a yield of 9%.

While the dividend would appear to be covered by in-year trading cash flow, the cover is more marginal in following years, Liberum said.

Liberum believes rather than paying a dividend, Royal Mail could use the cash it has to fund a restructuring programme and additional investment to drive productivity improvements.

This would be preferable to raising leverage or issuing new equity, it said.

Dividend suspension 'cannot be ruled out'

“We think it is unlikely that the dividend will be suspended altogether, although that cannot be ruled out,” Liberum said.

“We suspect the postponement of the capital markets day until after the FY results in May (previously tentatively scheduled for March) gives time for the board to consider the dividend in the context of whatever new strategy management bring forward."

Liberum assumes the final dividend for the current year will be passed, giving a full year dividend of 8p per share from the interim payout.

It expects the future annual payment will be rebased to this level, saving the company £333mln in cash over the next two years.

"We forecast a significant dividend cut.

In late-morning trading, shares were little changed at 269.4p on the day but have fallen more than 11% since the start of the week.

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Thu, 31 Jan 2019 11:21:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/213716/royal-mail-set-to-announce-significant-dividend-cut-liberum-predicts-213716.html
<![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190130110001_13952011/ Wed, 30 Jan 2019 11:00:01 +0000 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190130110001_13952011/ <![CDATA[News - Royal Mail boss Rico Back faces uphill battle in bringing shares back above IPO level ]]> https://www.proactiveinvestors.co.uk/companies/news/213514/royal-mail-boss-rico-back-faces-uphill-battle-in-bringing-shares-back-above-ipo-level-213514.html Royal Mail Group PLC’s (LON:RMG) chief executive Rico Back has got his work cut out for him in his quest to turn around the business.

The postal operator’s shares have not traded above the 330p issue price of its 2013 initial public offering since last November.

READ: Royal Mail says UK letters volumes and productivity down, shares plunge

Royal Mail was demoted from the FTSE 100 in December after an October profit warning sent its shares crashing. Since then, the shares have fallen another 25%.

Around noon on Tuesday, the shares were trading at 268.7p, down 10.6% on the day, after Royal Mail narrowed its profit guidance range for 2019 in a trading update for the first nine months of the year.

READ: Royal Mail expects letter volumes to miss forecasts and parcel deliveries to slow in 2020

“The 330p issue price from Royal Mail’s IPO is no longer looking either the bargain or scandal which different voices argued it was back in 2013,” said Russ Mould, investment director at AJ Bell.

He added: “All told, there is a huge amount for CEO Rico Back to do if the business is to have a chance of getting back above 330p per share, or even the 455p closing price on its stock market debut.”

The privatisation was criticised for being underpriced, leading taxpayers to miss out on an estimated £1bn at the expense of investors. 

Letters on the way out 

At the heart of Royal Mail’s troubles is the letters business. Letter delivery volumes have been falling as an increasing amount of communication moves online.

The letters division has also been hit by the EU’s General Data Protection Regulation (GPDR). Last year, the EU tightened the GDPR rules to give individuals more control over their personal data and limited the amount of junk mail companies can send.

In the first nine months of 2019, letter volumes fell by 8% and letter revenues dropped by 6%. Royal Mail expects full-year letter volumes to decrease by 7-8%.

For the 2020 financial year, the group warned letter volumes could fall by more than the 4 - 5% decline previously expected due to “business uncertainty”.

“The continuing collapse in letter volumes is the big news in these numbers,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

“Royal Mail’s gone out of its way to say that’s down to wider uncertainty, and the introduction of new privacy laws under GDPR, rather an uptick in companies using email rather than paper. Whatever the cause, we suspect those mailings are gone for good."

Parcels facing tough competition

But the letters division is not the only area of concern for Royal Mail.

The international parcels unit, Global Logistics Systems (GLS), has continued to face cost pressures in Europe and the US as it lowers prices to fend off competition from the likes of Amazon, FedX, Hermes, Deutsche Post and DPD.

Royal Mail said prudent pricing initiatives and cost mitigation actions mean it still expects GLS to achieve an adjusted operating profit margin of more than 6% for the year.

However, the decision to protect margins mean it now sees GLS parcel volumes slowing in 2020.

Nevertheless, growth in parcel volumes continued to offset the ongoing decline in letters during the first nine months of 2019, with total revenue rising 2%.

UK parcel volumes and revenues both increased 6% while GLS volumes and revenues rose 5% and 8%, respectively.

“Even in the normally impressive numbers from GLS, cost pressures remain and Royal Mail has announced its intention to focus on margin protection, which will inevitably come at the cost of a loss of some volume growth,” said Richard Hunter, head of markets at Interactive Investor.

“Even if achieved, the overall projected operating profit will be significantly shy of the previous year’s number.”

Royal Mail cuts upper end of full-year guidance, delays CMD

Royal Mail said while its trading has been broadly in line with expectation, it now predicts adjusted group operating profit before transformation costs of £500-£530mln for 2019, down from the previous guidance of £500m-£550mln.

The group also decided to push its capital markets day from March until after the full year results in May.

"Given the importance of understanding management’s long-term strategy to turn the business around, this is disappointing," Liberum said, repeating a ‘sell’ rating.

"The hope must be that more radical options are being contemplated, requiring further time for planning and consultation."

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Tue, 29 Jan 2019 12:19:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/213514/royal-mail-boss-rico-back-faces-uphill-battle-in-bringing-shares-back-above-ipo-level-213514.html
<![CDATA[Media files - Royal Mail update 'further recognition of its ongoing issues' - analyst Richard Hunter ]]> https://www.proactiveinvestors.co.uk/companies/stocktube/12023/royal-mail-update--further-recognition-of-its-ongoing-issues----analyst-richard-hunter-12023.html Tue, 29 Jan 2019 11:08:00 +0000 https://www.proactiveinvestors.co.uk/companies/stocktube/12023/royal-mail-update--further-recognition-of-its-ongoing-issues----analyst-richard-hunter-12023.html <![CDATA[News - Royal Mail expects letter volumes to miss forecasts and parcel deliveries to slow in 2020 ]]> https://www.proactiveinvestors.co.uk/companies/news/213479/royal-mail-expects-letter-volumes-to-miss-forecasts-and-parcel-deliveries-to-slow-in-2020-213479.html Royal Mail Group PLC (LON:RMG) cut the upper range of its 2019 profit guidance and expects letter volumes next year to decline more than previously estimated and parcel deliveries to slow.

In reaction, shares plunged 8.8% to 274.2p in morning trading. 

The postal operator has been struggling with falling letter volumes as more consumers and businesses switch to electronic communication.

READ: Christmas spirit could be lacking for Royal Mail as ejection from FTSE 100 index beckons once again

Last year, new General Data Protection Regulation (GPDR), which aims to give individuals more control over their personal data, added pressure on the letters business as it meant less marketing material was sent in the post.

Royal Mail said it continues to estimate a 7-8% drop in letter volumes in 2019 after an 8% fall in the first nine months of the year, reflecting the impact of GDPR and a “relatively strong” year-ago period in comparison. Letter revenue decreased 6% in the nine-month period.

Letter volumes to miss expectations in 2020

For the fiscal year 2020, it anticipates addressed letter volume declines, excluding elections, are “likely to be outside our forecast medium-term range”.

“While the rate of e-substitution remains in line with our expectations, business uncertainty is impacting letter volumes,” said chief executive Rico Back.

Growth in the company’s international business, Global Logistics Systems (GLS), and the UK parcel delivery arm mitigated falling letter volumes in the first nine months of 2019 to achieve a 2% rise in total revenue for the period.

UK parcel volumes and revenues both increased 6% while GLS volumes and revenues rose 5% and 8%, respectively.

Back said the group had a busy Christmas period, handling 164mln parcels in December alone, up 10% compared to last year.

Royal Mail cuts top end of 2019 profit guidance 

"Overall, our recent trading performance was broadly in line with our expectations,” said Back.

“We now confirm that we expect to deliver adjusted group operating profit before transformation costs of £500-£530mln for 2018-19.”

Previous guidance was for profit of £500m-£550mln. 

Back said GLS continues to face cost pressures in Europe and the US amid tough competition but prudent pricing initiatives and cost mitigation actions mean the firm continues to target an adjusted operating profit margin of more than 6% for the year.

But the decision to protect margins means Royal Mail expects the rate of GLS volumes to slow next year. 

Capital markets day pushed back

Royal Mail said its capital markets day (CMD) is now expected to be delayed from March until after the full year results in May.

"Given the importance of understanding management’s long-term strategy to turn the business around, this is disappointing," said analysts at Liberum.

"The hope must be that more radical options are being contemplated, requiring further time for planning and consultation."

Liberum repeated a 'sell' rating on the stock, saying it sees downward pressure on consensus forecasts for next year due to the cautious guidance on UK letters volumes and GLS growth.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said news that CMD has been pushed back suggests that the all-important cost savings may also be proving harder to deliver than hoped.

"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," he said.

"Those worries explain why the group currently offers a prospective yield of 8%, investors are nervous.”

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Tue, 29 Jan 2019 07:46:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/213479/royal-mail-expects-letter-volumes-to-miss-forecasts-and-parcel-deliveries-to-slow-in-2020-213479.html
<![CDATA[RNS press release - Nine Months 2018-19 Trading Update ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190129070007_13949533/ Tue, 29 Jan 2019 07:00:07 +0000 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190129070007_13949533/ <![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190118152047_13940104/ Fri, 18 Jan 2019 15:20:47 +0000 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190118152047_13940104/ <![CDATA[RNS press release - Exchange of contract for sale of Nine Elms plot ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190117103600_13938233/ Thu, 17 Jan 2019 10:36:00 +0000 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190117103600_13938233/ <![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190116174654_13937233/ Wed, 16 Jan 2019 17:46:54 +0000 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190116174654_13937233/ <![CDATA[RNS press release - Director/PDMR Shareholding ]]> https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190116174609_13937232/ Wed, 16 Jan 2019 17:46:09 +0000 https://www.proactiveinvestors.co.uk/companies/rns/718/LSE20190116174609_13937232/