Royal Mail shares a bargain at this price - here's why

[TrueBlueTerrier]

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Royal Mail’s share price (LON:RMG) has been beset by industrial disputes surrounding its pension scheme, creating a lot of concern amongst investors. But this distracts from the bigger picture: that at the current price of 400p, it is a bargain.

Now, the industrial disputes that have dominated headlines recently are bad, no doubt about it. The clash between Union bosses and management is almost certainly behind the drop in price back down to near all-time lows.

At current levels, price is below the flotation price in 2013. But the fundamental health of this company looks much stronger than it did then.

This leads me to believe the industrial disputes are casting too long a shadow over the company, and its effects are much-exaggerated.

Royal Mail’s dividends are high at 6%, amongst the highest of any company in the FTSE index. What’s more, the price to earnings ratio of 14.47 puts it a 20% discount to its European counterparts.

Backed by an increase in parcel revenue, profits are up 25% on last year. Cash flow is strong, with a Cash Flow Margin of 7.71%. Debt to capital ratio continues to fall for the 5th year running.

All very positive.

JPMorgan and HSBC analysts are bullish on the stock, with the former placing an ‘overweight’ rating on the company, and a price target of 550p. That's a 37.5% increase from current levels.

A hard look at the numbers puts the industrial dispute into perspective and savvy investors are considering this a value opportunity. The timing could prove ideal, as Royal Mail's share price sits around the 400p level, a psychologically important point, and one that has seen buyers step up before and drive price higher.

The recent furore driving price down to this level may be the best opportunity for long term investors to buy the postal giant, or to add to existing positions and decrease their cost basis.

As of 14:29 BST, Thursday, 17 August, Royal Mail share price is 512.75p.

[Lounge Lizard]

"Royal Mail’s dividends are high at 6%, amongst the highest of any company in the FTSE index" and all that money paid out in dividends is money not invested in new equipment and adequate staffing levels. .

[rambo1]

If we strike at Christmas you can kiss goodbye to any more divs , oh and we won't be a ftse 100 company any more. We would lose so much business royal mail would shrink, loosing jobs but hopefully not going out of business. Yes, that is a possibility now we are a plc. Most posties don't think this is a possibility. It is. Ok, I don't want to be shafted as much as the next man (or woman) however we have to be realistic too. The steelworkers made a massive compromise with their pensions in order to keep their jobs.

[chickenwittle]

Ok Moyà , thanks for your input .

[GRS]

So it will suit many people at the top table to drag these talks on to keep the share price down enabling them to buy up as many shares as possible. Reading the above article indicates that once things are resolved the price will rapidly rise. Interesting or maybe I'm being cynical.

[Spedley]

Ok Moyà , thanks for your input .

[Wednesday]

Share price on Thursday was 512.75 ! Should have sold them.

[rambo1]

Share price on Thursday was 512.75 ! Should have sold them.

Don't know what world you live in?

[rambo1]

Ok Moyà , thanks for your input .

Suggest you take your head out the sand.

[Lounge Lizard]

Ok Moyà , thanks for your input .

Suggest you take your head out the sand.

Suggest YOU take your head out of the Courier !

[k979aaa]

I suggest waiting till the strike ballot or just after pick them up at £3.50 or less then.

[wandle]

If we strike at Christmas all the self-employed 'white van man' types Amazon use, plus all of our competitors combined capacity could still not handle all the parcels that would otherwise be posted via Royal Mail
you can kiss goodbye to any more divs What, you mean Royal Mail would recruit some professional managers, from outside RM? ,
oh and we won't be a ftse 100 company any more. We would lose so much business royal mail would shrink, losing jobs but hopefully not going out of business (see above, regarding capacity).
Yes, that is a possibility now we are a plc. No, it isn't - a hostile takeover is far more likely, if the share price fell below net asset value
Most posties don't think this is a possibility. It is. Wrong
Ok, I don't want to be shafted as much as the next man (or woman) however we have to be realistic too. The steelworkers made a massive compromise with their pensions in order to keep their jobs poor analogy - Tata Steel were threatening to move production abroad. Royal Mail can't send mail abroad for sorting by workers in some low-wage country!! .

[rambo1]

If we strike at Christmas all the self-employed 'white van man' types Amazon use, plus all of our competitors combined capacity could still not handle all the parcels that would otherwise be posted via Royal Mail
you can kiss goodbye to any more divs What, you mean Royal Mail would recruit some professional managers, from outside RM? ,
oh and we won't be a ftse 100 company any more. We would lose so much business royal mail would shrink, losing jobs but hopefully not going out of business (see above, regarding capacity).
Yes, that is a possibility now we are a plc. No, it isn't - a hostile takeover is far more likely, if the share price fell below net asset value
Most posties don't think this is a possibility. It is. Wrong
Ok, I don't want to be shafted as much as the next man (or woman) however we have to be realistic too. The steelworkers made a massive compromise with their pensions in order to keep their jobs poor analogy - Tata Steel were threatening to move production abroad. Royal Mail can't send mail abroad for sorting by workers in some low-wage country!! .

Divs is short for dividends, guess you know that and are just trying to be funny. In the event of a hostile takeover, how much do you reckon the ones left would get paid? I'm guessing minimum wage . I don't take much notice of whats in the courier, same as what the cwu tell us. They both have their own agendas and the truth is most likely somewhere in between. I do follow business matters and deal in stocks. Everything I said is a real possibility. Believe me or not.

[datasaint]

There won't be any strike, a lot of this is posturing from both sides. RM want to see how strong we are and the union are only too happy to oblige.

This article is written by somebody who's trying to ramp the share price though, probably bought in at 450p thinking it would climb to 500p again.

There's increasing competition in the parcels market, and RM need to be more innovative in meeting customers needs, we should be doing evening deliveries at this point. Businesses could deliver goods into the nearest DO by 3PM and we could be out delivering them to customers from 5pm-9pm, a same day delivery when people are actually home. The infrastructure is already there, it just requires new thinking.

[Lounge Lizard]

There won't be any strike, a lot of this is posturing from both sides. RM want to see how strong we are and the union are only too happy to oblige.

This article is written by somebody who's trying to ramp the share price though, probably bought in at 450p thinking it would climb to 500p again.

There's increasing competition in the parcels market, and RM need to be more innovative in meeting customers needs, we should be doing evening deliveries at this point. Businesses could deliver goods into the nearest DO by 3PM and we could be out delivering them to customers from 5pm-9pm, a same day delivery when people are actually home. The infrastructure is already there, it just requires new thinking.

Norm,
Yes, "we could be out delivering them to customers from 5pm-9pm" and doing pizzas at the same time, that'll delight the shareholders.