Royal Mail drops on concerns about future profits

[TrueBlueTerrier]

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Despite Next’s profit warning, the retailer is no longer the biggest faller in the FTSE 100.

That dubious accolade goes to Royal Mail at the moment. Just over a year on from its controversial flotations at 330p a share and ahead of the key Christmas period, it now stands at 445.9p, down 7.4p. That is above its low of 388p, with its shares recovering some ground after recent news of the £111m sale of its former mail centre in Paddington, west London.

This latest share price fall follows a downbeat note from analysts at Credit Suisse. Ahead of the second quarter results on 19 November the bank has repeated its underperform recommendation, albeit with a target price raised from 350p to 377p. Analyst Hugo Turner said:

We model underlying profitability - pre-transformation (its modernisation programme) not returning to 2014 peak levels before 2018. We think this will prompt incremental transformation spend, impacting cash.

Royal Mail has already set a precedent within its first year as a listed company (£100m cash impact in 2015). And for a restructuring plan likely to be more protracted than expected, property disposals (only two of which are left) are likely to provide only short-term relief. We mechanically increase our target price by 5% to 377p to reflect the Paddington disposal, and revalue the two remaining assets upwards. And with Royal Mail re-rating 13% since lows in August on the back of this disposal, we feel recent strength is overplayed going into results.

We make no changes to estimates and continue to see pressure on the 50 basis points margin improvement guided to for 2015. Industry trends have not been supportive: i) UK Mail has flagged market wide parcels weakness, ii) foreign exchange headwinds in international parcels are persisting, iii) there is well flagged competitive pressure from Whistl (previously TNT Post UK) and iv) trading at [European parcel delivery business] GLS could further disappoint – TNT Express profit warning providing some context. We think consensus needs to adjust down further for 2015/2016 – our full year 2015 estimated £431m operating profit post transformation costs sits around 8% below company consensus.

[houseoflords]

Always pleading Poverty, dont believe a word of it, Moya still gets all her Bonus

[Darren Bent]

It is easy to increase profits. Cull the management, start an hour earlier and invest in quality not the cheapest stuff.

[janitor]

How about start at 5am out of office with all parcels, tracked,recorded and specials by 7am deliver 90+% first time,back by 9.30 break till 0950 out again with rest of post letters and D2D to finish at 1300. System could be called something revolutionary, like twice over the ground.Could work.

[wacko74]

Credit Suisse have been constantly talking down RM share price prospects pretty much from day one, they've obviously got an axe to grind or a hidden agenda.

[Eagie]

How about start at 5am out of office with all parcels, tracked,recorded and specials by 7am deliver 90+% first time,back by 9.30 break till 0950 out again with rest of post letters and D2D to finish at 1300. System could be called something revolutionary, like twice over the ground.Could work.

What go back to a system that "WORKED" Smoothly 30 years ago and have a Happy Work Force! that would upset the so called Management

[larry42]

Credit Suisse have been constantly talking down RM share price prospects pretty much from day one, they've obviously got an axe to grind or a hidden agenda.

I'm not one to entertain conspiracy theories, but I do think there is a hidden agenda from the top. I can only state that in my depot in just over a year, going from pre-privatisation and pre-revision (rounds achievable) office somewhat stable, to privatisation and post- revision (rounds unachievable and office in daily meltdown) we also have a daily Mexican standoff with manager about completion. He told us the other day, that are attitude was wrong and TNT will soon be nipping at our heels and taking our jobs. It was pointed out to him, that in just our row of frames alone collectively you had nearly a hundred years of postal worker experience, and how come in just over a year we have gone from trusted custodians of the Queens mail to pack mules heading for the knackers yard. Yes there is an agenda.
Maximum profit and a policy to deregulate and devalue the job.