Royal Mail PLC (LSE:RMG) plans to overhaul its business by changing the name of its listed entity and potentially splitting its more profitable logistics division from its postal service.
The company said in a statement today that it will scrap the title of its public limited company, Royal Mail PLC, and change its longstanding moniker to International Distributions Services plc.
The move reflects its growing reliance on returns from Global Logistics Services, its Amsterdam-based logistics arm, which it bought in the late nineties and rebranded in the early noughties.
While the company said the move would not impact its two brands, the Royal Mail postal service and GLS, it said it is considering separating the two companies if the postal service fails to meet expectations.
“In the event that significant operational change within Royal Mail in the UK is not achieved, the board will consider all options to protect the value and prospects of the group, including separation of the two companies,” it said in a statement.
The company said its intention is to “have clearer financial separation” between the two businesses and appears to be seeking to consolidate its international platform.
Just how Royal Mail will achieve a separation with the postal service that once held a monopoly of the UK market and employs one in 175 British citizens remains to be seen.
It did not rule out a possible sale of the postal service, once its core business, after it posted a £92mln adjusted quarterly operating loss for the first quarter.
Analysts suspect that the company will continue to suffer the “same old problems” even after operating under a new name.
Laura Hoy, an equity analyst at Hargreaves Lansdown, said: “Royal Mail’s doing somewhat of an about-face with a new name to reflect increased focus on GLS, its international delivery business.
“While this part makes up around a third of revenue, it’s responsible for two-thirds of operating profit, suggesting this could become somewhat of a life raft as the group struggles to stay afloat in choppy seas. However, it won’t be enough to weather a Tsunami, in which case the group’s mentioned it’s open to parting ways.”
A split wouldn’t necessarily make things any easier, according to Hoy, who said GLS—“a small fish in a big sea”—could find it difficult to compete on the international stage.
She said the “distinct change in tone” by Royal Mail’s management “reflects its failure to gain union approval on this year’s cost-saving targets”.
Royal Mail may “continue to struggle” for as long as it’s at odds with the union, she added.
Without backing from the unions, about £100mln of Royal Mail’s planned £350mln cost-savings plan is under pressure.
UBS analysts said in an analyst note today that the threat of a possible split “could put pressure on the union but at the same time provides a valuation support for the shares”.
“We believe the market will likely take this announcement positively,”
UBS said. “Applying historical M&A multiples to GLS (high teens EV/EBIT) we calculate the current share price implies the value of the UK business is negative around -£1bn.”
Revenue at Royal Mail fell 11.5% in the first quarter, weaker than analysts’ expectations, while turnover at the logistics business increased by 7.8%.
UBS rated the company ‘neutral’ on a price target of 280p.
Royal Mail’s shares were trading at about 278.6p by 11:43 today, after falling 2.25% this morning.