Low UK productivity "biggest challenge" for Royal Mail, says Jefferies

[TrueBlueTerrier]

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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

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.

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.

[houseoflords]

It's a highly Labour intensive job, no machine as of yet can knock peoples doors to deliver parcels and letters so yes I guess we are Low Productivity waiting for people to answer.

[datasaint]

I think it's a case of money put in vs money out, so on paper the competition look more productive because their staff bill isn't as high.

RM has the potential to make a heap of changes to save money, but what resistance would there be from the union that's the question.

[Driver74]

I think even in a mail centre a lot of people would be surprised how labour intensive it is despite of a lot more modern machinery there are still huge amounts of staff in the building

[GRS]

Of course RM productivity is low - just look at how many managers swan round the business doing F all. There are many management and analysts jobs within the company that have job titles that no bugger can even understand what they do. When financial analysts etc make these sort of statements people immediately think “oh the postman aren’t working hard enough they need more to do” when in fact it’s the management bleeding us dry. How many letters and packets do you need to deliver to cover these peoples wages?

[wacko74]

It would be interesting to know what the ratio of managers to employees our competitors operate at.

Some days we have 4 managers/linos and a dom support for an office of 60 duties.

[redneck]

Bloody annoys me how the suits 'low productivity' statements have a dig at the workforce being lazy, yet they know damned well (and never clarify) that lack of investment in new technology, piss poor management, low morale, boardroom rewarding themselves are all the main factors away from that blunt and offensive statement. The vast majority of RM workers work hard in a physical job but are the first thing Joe Public thinks of when these statements are made.

[Phantom]

I think it's a case of money put in vs money out, so on paper the competition look more productive because their staff bill isn't as high.

RM has the potential to make a heap of changes to save money, but what resistance would there be from the union that's the question.

I hope theres plenty of resistance from the Union, we are not here to feed shareholder greed, simple! We are humans, not robots, walking longer than 5 hours day will take its toll on the body young or old.
Competition don't deliver letters, we work in a different environment and that needs to be understood, we cannot be compared to dhl, tnt, dpd, they don't do what we do.

[Celgar]

Productivity & profitability are such vague terms especially in the way these broker types use them. They don't in any way explain the full picture even though it's obvious to anyone what the situation is. Regulation is a good thing to have in general but the current system of regulation is loaded against RM in spades. We have fifty percent of the market in parcels so how can that not be productive. They continue to go on about a detrimental effect of the SWW as well which has no effect on the business whatsoever except that a higher percentage of work is completed unpaid.

[k979aaa]

What is the productivity of a merchant banker? the sum of 0=0 they only deal in others losses. Remember the banks how much did that cost us all RBS ect probably £2000 billion plus all the other banks talk about productivity remember RM paid £350 Million every year form 1990-2000 and never took from the government but the government did take our pension pot of us all in return for a fake promise of future benefits guaranteed! Well productivity only goes one way up our arses the only thing the workers have is sore arses and be sure it will only get worse!

[Celgar]

I read elsewhere on this forum that Yodel made an 80 million pound loss last year. Maybe they should go and have a dig at them instead. I wouldn't be at all surprised if all this criticism is lining RM to be bought up and stripmined once the share price has fallen as low as they can make it fall.

[wacko74]

It's mainly because (our) labour is so cheap that 'productivity' is so low, no point in the business committing to long term investments in expensive machinery etc to improve efficiency when you've got a workforce of low paid donkeys that can be hired or let go at will.

[Sir Henry]

Shower of utter c***s running the show "biggest challenge" for RM workers says Sir Henry

[work]

...for a logistics organisation the management heirarchy is mostly OUT OF TOUCH* with life in a red/blue shirt...my office mngmnt NEVER assist with deliveries*. At my former office they all got stuck in, covering weeks off, even the dom got his waterproofs on last winter... and we had 187 posties! the latest crew of 'managers' can't see past the office door until the mail is out; that is...then they skeddadle like rats

Shower of utter c***s running the show "biggest challenge" for RM workers says Sir Henry

[k979aaa]

Had one manager in our place winkle pickers on his feet never had any intention of work in his body never mind soul.