It’s been a rocky road for Royal Mail (LSE: RMG) so far in 2022. Having fallen over 50% year to date, the stock currently sits at just 259p. This fall in share price movement and subsequent shrinking of its market cap pushed the company out of the FTSE 100 index in June this year. Broadening the horizon to a 12-month span, the shares have tanked 47%. So, with this in mind, is now the time to buy the shares? Or should I avoid adding this FTSE 250 UK courier to my portfolio?

Union action

One of the most pressing issues plaguing the group is the threat of strike action. Royal Mail has been in a long dispute with the Communication Workers Union (CWU) over pay. With no firm agreement reached, it was announced that Royal Mail workers would strike for four days in the next few weeks.

The strikes come after months of red-hot inflation, which most recently hit 10.1% in the UK in July. Rising prices are vastly outpacing wages and magnifying the cost-of-living crisis. It’s estimated that 115,000 workers will partake in the strike action, which will place momentous pressure on Royal Mail’s operations.

Disruption to operations is a short-term issue, but I still expect a big impact on the firm’s revenues. However, over the long term, it places even more pressure on the group to reform pay packages. Royal Mail currently employs around 180,000 staff. Even a small increase in wages would add millions in operating costs. The courier operates with slim 5% profit margins, so higher wage costs for it are a big issue.

Interest rate pressure

With inflation and interest rates on the rise, it has created a far from favourable market environment for Royal Mail. The group has high debts, low cash flow, and is loss-making. This makes it a pretty risky investment. As rates rise, people turn away from speculative assets like risky stocks and pour their money into safer ones. As rates continue to rise, this could put additional pressure on Royal Mail shares. Also, with over £900m net debts on its balance sheet, and those thin margins, rising rates are something the group simply cannot afford.  

A bargain buy?

One positive I see for Royal Mail shares is their cheap valuation. Currently trading on a price-to-earnings ratio of just 4, the stock looks astonishingly cheap – especially considering the FTSE 100 average P/E ratio of 14. In addition to this, it packs a meaty 6.4% dividend yield, which could be great for adding passive income to my portfolio and acting as an inflation hedge.

Yet while the shares are cheap and the dividend is high, there are too many red flags for me to buy this stock. Strike action poses a big threat to the firm’s income, as well as potentially forcing it to vastly increase its expenditure. Inflation and interest rates pose a similar threat. For those reasons, I won’t be buying any Royal Mail shares today.

The post Should I snap up Royal Mail shares at 259p? appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Director dealings are essentially insider transactions for shares between directors and the companies they work for. These dealings are always made public, and are often considered a good indicator of a company’s future prospects. However, they don’t get nearly as much attention as other company news due to their complex nature. Nonetheless, here I’m breaking down this week’s biggest director dealings from three FTSE firms.

Aviva

Aviva (LSE: AV) is a British multinational insurance company. It has millions of customers across its core markets. Aviva is also the UK’s largest general insurer. This week, an influential director purchased shares through the firm’s Global Matching Share Plan.

• Name: Jason Storah
• Position of director: Chief Executive Director
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 15 July 2022
• Amount bought: 38.413602 @ £3.93
• Amount received: 76.827204 @ £3.93
• Total value: £452.70

Royal Mail

Royal Mail (LSE: RMG) is Britain’s biggest postal service and courier company. The group runs the brands Royal Mail and GLS. It released its Q1 trading update this week. Two director dealings also occurred.

• Name: Mick Jeavons
• Position of director: Chief Financial Officer
• Nature of transaction: Free shares (Deferred Share Bonus Plan 2019)
• Date of transaction: 18 July 2022
• Amount bought: 14,132 @ nil
• Total value: £N/A

• Name: Katherine Amsden
• Position of director: PCA of Mark Amsden, Group General Counsel and Company Secretary
• Nature of transaction: Purchase of shares
• Date of transaction: 21 July 2022
• Amount bought: 34,262 @ £2.92
• Total value: £99,977.21

Deliveroo

Deliveroo (LSE: ROO) is a British online food delivery company. It operates in over 200 locations across the UK and internationally. In the UK, it is the second-biggest food delivery platform. In this week’s transaction, a director exercised their option to redeem stock compensation.

• Name: Adam Miller
• Position of director: Chief Financial Officer
• Nature of transaction: Free shares
• Date of transaction: 15 July 2022
• Amount received: 83,400 @ £0.85
• Total value: £70,973.40

• Name: Adam Miller
• Position of director: Chief Financial Officer
• Nature of transaction: Sales of shares to cover tax liabilities
• Date of transaction: 15 July 2022
• Amount sold: 40,407 @ £0.85
• Total value: £34,345.95

Types of shares in a SIP

To provide context, there are a few types of shares within a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to flexibly award equity to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this week’s director dealings, Aviva’s CEO opted to purchase partnership shares. Partnership shares give employees the opportunity to buy shares via deductions from their salary, before tax deductions. But where partnership shares are offered, the company can also offer matching shares. This can range up to a maximum ratio of two free matching shares per partnership share purchased, as was the case. That being said, it’s important to note that matching shares must normally be held in a trust for at least three years, and held for five years in order to receive full tax relief. However, these shares may be forfeited if an employee withdraws their partnership shares from the trust.

On the other hand, the Royal Mail CFO received free shares. This occurred under the company’s Deferred Share Bonus Plan from 2019. Having said that, the director is expected to retain their share-based awards until they achieve an equivalent of 200% of their salary.

As for Deliveroo’s CFO, he received free shares. These are a form of restrictive stock units (RSU). RSUs are a form of stock compensation. It is a promise from the company to award a company’s shares in the future. RSUs are most often used in younger companies. This is because cash on its balance sheet is used to grow the business instead.

The post Director dealings: Aviva, Royal Mail, Deliveroo appeared first on The Twelfth Magpie.

More reading

• A £10,000 ISA buys 1,931 shares in these 6.5%+ yielding dividend stocks!
• 3 top passive income shares to consider with dividend yields above 5%
• How much do you need in a SIPP to target a stunning £750.75 weekly passive income?
• How to turn a £20k ISA into a £12,000 yearly second income
• Starmer resigns as PM — what could this mean for UK stocks and the FTSE 100?

John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Deliveroo Holdings Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Seeing red

Once a pandemic darling, the tailwinds that brought the Royal Mail share price close to its all-time high have now dissipated. As such, the group saw a tremendous slowdown in revenue growth in the past year. A 0.6% increase in total revenue wasn’t enough to please investors as operating profit, basic earnings per share (EPS), and free cash flow, all saw declines.

Additionally, management mentioned an uncertain outlook for the year ahead. The board cited wage inflation, sharp increases in energy and fuel costs, low GDP growth, and the downturn in consumer spending to create significant headwinds for the year ahead. To make matters worse, the FTSE 250 firm is still in dispute with its workers over its latest pay round, with threats of strike action.

Royal rebound on the cards?

Taking all those factors into account, analysts have revised their FY23 earnings for the firm downwards. Expected EPS now stands at 44.8p, with revenue for the year at £12.69bn. But if Royal Mail can provide a positive trading update tomorrow with upbeat guidance, a potential rebound could be on the cards.

Admittedly, stalling retail sales data in the past quarter doesn’t bode well for Royal Mail shares. However, there are glimmers of hope that the firm may not be as badly affected as initially thought. A recent report by the Office for National Statistics provided a couple of positive takeaways.

Generally, the public is buying less food, putting off delayable spending and is less like to spend money going out. However, spending on hobbies and home improvements has gone up, with people sticking with online shopping. Shopping and spending habits may be ‘incredibly positive’ for the consumer. Online purchases have been consistently above pre-pandemic levels since October 2020.

Source: Office for National Statistics

To complement this, the latest results from packaging company DS Smith were encouraging too. Revenues were up 21% on an annual basis, with management attributing the improvement to higher demand for cardboard boxes, like those Royal Mail often delivers. Even though DS Smith’s results may not have a direct correlation, it does show that packages are still in high demand. And I’d assume that Royal Mail would benefit to some extent from delivering such parcels.

Can it deliver?

Taking everything into consideration, would I still buy Royal Mail shares before its earnings results? Well, despite the potential swing of the pendulum in its share price, there are still a couple of caveats I can’t look past.

For one, labour strikes are still very much a possibility despite unions suspending strikes for the time being. Talks could come to an unwanted conclusion, and would massively impact the company’s business operations. Moreover, with inflation getting higher, it’s becoming more likely that consumer discretionary spending continues to decrease. And while the group’s GLS division has been boasting consistent and steady growth, I’m doubtful that this can pull the entire company’s weight for the long term. Therefore, I won’t be buying Royal Mail shares until we see a more certain economic landscape.

The post Should I buy Royal Mail shares before its earnings results? appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended DS Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Earnings results are a great way for investors to judge a company. They’re used to determine whether companies are on track with their initial guidance. These results can often radically move share prices in either direction, depending on the numbers reported. So, here’s an earnings preview for three FTSE firms reporting results this week.

It’s always best to compare firms’ new quarterly/half-year numbers to those from prior years. But certain revenue figures may have been impacted by the pandemic, so it’s important to get context from pre-pandemic levels too. The new figures that are due can also be useful to determine whether a company can perform better than its previous year’s numbers, or if it can beat analysts’ annual forecasts. It’s a shame that analysts in the UK don’t normally publish earnings previews for quarterly or half-year periods.

Royal Mail (Q1 trading update)

Royal Mail (LSE: RMG) is Britain’s biggest postal service and courier company. The group runs the brands Royal Mail and GLS (an international logistics company). The FTSE 250 firm is expected to provide a trading update for its most recent Q1 performance ending June 2022 on Wednesday 20 July. The company’s financial year ends in March 2023.

Analysts covering Royal Mail are predicting a slowdown in both its top and bottom lines for the current financial year. The board painted a gloomy picture for the group in its Q4 earnings call, which sent the share price crashing. Lockdown tailwinds have dissipated, and the logistics group is locked in discussions with staff over its latest pay round, with the threat of possible strike action. Pair that with a slowing British economy and high fuel costs, and it seems to me that the only way for its share price to go is down. Making matters worse, EPS for its current year has seen a steady decline from £0.54 to £0.45 over the last 90 days. Nonetheless, if revenue figures come in above 2020 levels, there could be a surprise rally.

Howden Joinery (H1 earnings)

Howden Joinery (LSE: HWDN) is the UK’s number one trade kitchen supplier. It provides thousands of products across kitchens, joinery, and hardware. The FTSE 100 firm is expected to post its half-year earnings for its six months performance ending June on 21 July. The company’s financial year ends in December 2022.

The overall consensus is that Howden Joinery is expected to continue growing its top and bottom lines. Analysts have also revised their EPS targets for the current year upwards, by nearly £0.01 in the last 90 days. That being said, investors will be paying attention to the guidance provided on Thursday in order to determine whether the supplier can beat its previous year’s record figures.

Dunelm (Q4 trading update)

Dunelm (LSE: DNLM) is a British home furnishings retailer that operates throughout the UK. It’s one of the largest homewares retailers in the country with an ever growing market share. The FTSE 250 firm will be posting its Q4 trading update for the period ending June 2022 on Thursday 21 July. The company’s financial year ends in June 2022.

While public listed companies normally release their full year results along with their Q4 numbers, Dunelm will only report its FY earnings on 14 September. This is most likely due to its financial year only ending three weeks ago. Therefore, the trading update will be more akin to an earnings preview.

Having said that, the revenue figure will be watched closely as specific bottom line figures will only be released in September. Comments from the board will also be closely monitored as investors look to determine whether EPS estimates will be met. Nevertheless, analysts have revised their EPS targets from £0.79 to £0.80 in the last 90 days. Despite that, a slowdown in retail sales in the last quarter should be kept in mind. It may have impacted Dunelm’s top line figure, along with higher fuel and labour costs. These macroeconomic factors could see analysts’ EPS being revised lower, if management hints at lower margins in the trading update.

The post Earnings preview: Royal Mail, Howden Joinery, Dunelm appeared first on The Twelfth Magpie.

More reading

• Which UK stocks are investors overlooking right now?
• 3 shares to consider holding in a SIPP for decades
• How much must investors put into this overlooked FTSE dividend star to make an annual second income of £8,686?
• The FTSE 100’s Howden Joinery just made a bold move — should investors care?

John Choong owns shares of Dunelm. The Motley Fool UK has recommended Howden Joinery Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A great value stock

The low P/E ratio of Royal Mail does attract me. For a start, it’s well below the ‘value’ level of 10, and miles below the FTSE 100 average of 14. In addition to this, it’s far below competitors UPS and FedEx, which trade on P/E ratios of 14 and 16 respectively. All of this signifies that Royal Mail shares could be vastly undervalued at their current price.

In addition to the low price, the current dividend yields a healthy 6.2%. City analysts expect this number to creep up towards the 10% mark over the next few years as the courier raises its payouts. Therefore, a Royal Mail position could help me add some passive income to my portfolio – something I’m looking to do to keep up with rising inflation.

Why I’m wary

There are risks though. For starters, the state of the UK economy is a big threat to Royal Mail. Interest rates are being hiked to counter red hot inflation and eventually, this is going to slow economic growth. This could translate into less demand for parcels, which is bad news for Royal Mail.

Inflation itself is leading to ballooning costs for the firm too. Last year, transport made up 29% of the group’s costs. With oil prices through the roof, operating expenditure could swell to dangerous levels. With over £2bn of debt on the balance sheet, this is something the courier can’t afford.

In addition to this, the firm is facing huge industrial action issues. The cost of living crisis means workers want larger pay rises. The company has already proposed a 5.5% wage rise, which was recently rejected by workers. Such a rise would push the total wage bill up by over £250m, so the prospect of anything higher than this is pretty dire for Royal Mail. However, if nothing is done, then workers will strike, and the stock will tank. Both choices present pretty bleak situations for it.

Finally, competition in the parcel delivery space is heating up. Overseas giants like DHL are pouring millions into expansion, with DHL announcing plans to create 3,500 new jobs in the UK.

Would I buy?

It’s no secret that Royal Mail shares are cheap and offer a great dividend. However, I think the low share price reflects the tough outlook for the firm. Industrial action and the state of the macroeconomy are pitted against it, and I think these obstacles are going to be hard to overcome. As such, I won’t be adding the stock to my portfolio any time soon.

The post Royal Mail shares are down 48%: should I buy now? appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Dylan Hoo has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

So far in 2022, Royal Mail (LSE: RMG) shares have fallen 48%. Over a 12-month period, the story is even worse, with the shares falling over 54%. As a consequence, the stock is set to lose its FTSE 100 spot, being pushed into the FTSE 250 index instead. With all this negative news, is now a good time for me to buy the stock? Or should I steer clear of the UK’s largest postal service? Let’s take a closer look.

Why the shares have fallen

A key driver behind the recent poor performance is the subpar results that the firm has delivered in recent months. During the pandemic, Royal Mail shares soared, as online shopping became the norm. However, as the nation has returned to normality, the postal service has seen a decline in activity. It also experienced a severe shortage of staff earlier in the year due to the self-isolation of workers. As a consequence, it missed analyst profit targets, which investors have reacted negatively to.

Inflation has also been weighing down on stock valuations and decreasing investor sentiment. The subsequent cost-of-living crisis could lead to a drastic shortfall in demand. Royal Mail has an operating profit margin of just 6%, so any slight fall in demand could leave it susceptible to losses. In addition to this, the postal courier space is hot with competition, with firms like UPS and DPD threatening the group’s market share.

Another risk that worries me is the threat of union action on wages. The Communication Workers Union (CWU) is demanding wage rises to compensate for the increased cost of living. Royal Mail currently has around 400k employees, and even a small increase in its wage packages could lead to hundreds of millions in added expenditure. With margins already feeling the pressure, this is the last thing the firm needs. If an agreement is not reached, it could lead to strike action, which would undoubtedly force Royal Mail shares lower.

Undervalued opportunity

Although there are risks, the current share price does look tempting, especially considering its low valuation. The shares currently trade on a price-to-earnings (P/E) ratio of just 4.4. For comparison, competitors DPD and UPS trade on P/E ratios of 8.1 and 14 respectively. This shows me that the shares are undervalued compared to the wider market. In addition to this, Royal Mail currently pays a healthy 6.1% dividend. This could help my portfolio offset the effects of rising inflation while topping it up with passive income.

The verdict

There is no doubt that the shares look cheap, and the healthy dividend does appeal to me. However, I think there are too many risks outweighing the investment case for this stock. The rising cost of living is muting consumer demand, and the threat of union action could place big pressure on already thin margins. For this reason, I won’t be buying Royal Mail shares for my portfolio today.

The post Royal Mail shares are down 48%: should I buy now? appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Down over 40% this year at the time of writing, it’s hard to see any good news coming to its rescue any time soon.

Here’s what went wrong at Royal Mail

So what’s the problem? To a large extent, it’s an all-too-familiar post-pandemic story. Royal Mail benefited hugely from the lockdown-driven increase in online shopping, and the associated larger number of parcel deliveries.

But as the world returns to something like normal, this trend has reversed. And the Royal Mail share price is suffering, along with the prices of many other post-pandemic fallers.

The firm’s £758m adjusted operating profits for FY21/22 may have been an increase of 8% on the previous year. But this missed analysts’ consensus target of £771m and was received negatively by the market.

It’s not an easy time for any company at present, but Royal Mail has yet more challenges to come.

There may be trouble ahead

The headwinds of inflation and rising costs are expected to put further pressure on the profit margins of Royal Mail.

There’s also a potential further drop in deliveries, with the cost-of-living crisis and a possible recession for the UK. This could mean a drop in demand that would hurt the stock.

The falling price leading to the likely loss of its FTSE 100 spot won’t be a surprise and it was lucky to survive the previous review. But it will automatically reduce demand for its shares as FTSE 100-based trackers rebalance to include the newly promoted companies in its place.

Yet its biggest headache remains its ongoing battle with the Commercial Workers Union (CWU), which represents more than 100,000 Royal Mail workers.

The firm has already said that its FY22/23 profits assume its current wage offer will be accepted and that a strike will be avoided. Based on the latest round of negotiations, that’s looking increasingly unlikely.

It’s clear that Royal Mail desperately needs to modernise to compete. But it’s going to be an uphill struggle to do so in a way that also keeps its staff happy.

So, is it all doom and gloom for the beleaguered share price?

What does the future hold?

The outlook may be tough, but Royal Mail does benefit from its over 500-year history and British icon status.

Its ability to raise the cost of letters delivery — an area uncontested for now — will help protect it from inflation risks.

But as the letters market continues to decline, the future money is clearly in delivering parcels. And it’s a tough market out there alongside the likes of Amazon and DHL.

So, I’ll be watching closely to see how the Sunday delivery plans of CEO Simon Thompson pan out. This could be a step in the right direction if the firm can execute it well.

For now, with its dividend looking reasonably safe, I’ll continue to hold my Royal Mail stock while I wait and see what it can deliver.

The post Is there Jubilee cheer for the Royal Mail share price? appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Michelle Freeman holds shares in Royal Mail Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Posting disappointing numbers

A disappointing set of numbers sent the Royal Mail share price 10% down. While the group’s total revenue increased by 0.6%, it was below what analysts were expecting at £12.8bn. It’s also worth noting that revenue for the Royal Mail unit actually saw a decline. Its subsidiary GLS had an excellent year and was the sole reason behind the group’s total revenue growth. Earnings per share (EPS) dropped too, and total parcels volume saw a decline as well, falling 13%. Making matters worse, its balance sheet also took a hit. The board is lowering its dividend from 20p to 13.3p. Nonetheless, its financial position is much better than it was pre-pandemic.

Issues to address

With Royal Mail yet to agree a pay deal with its workers, uncertainty for the company looms. A strike is a possibility and could hit the top line even further. But if a pay deal is struck, management expects operating margins to stay healthy for the year. However, guidance was largely negative as Royal Mail continues to expect a decline in parcels volume. The winding down of Covid testing, with kits constituting 7% of parcels volume, is expected to hit the top line. Moreover, inflationary pressures have put a dent in international parcels and letter volumes. CFO Mick Jeavons mentioned on the earnings call that international parcels generate accretive margins, and Royal Mail is looking to revive its overseas shipments. Having said that, a potential recession meant the board gave no expected revenue or parcel figures for the year.

Positives to weigh in

Yet among the doom and gloom, there were a couple of positives to take away. For one, Royal Mail managed to gain market share (Excluding Covid test kits). It also heavily invested in a number of initiatives to boost parcels volume and reduce operating costs. These include Sunday deliveries, parcel collect, Royal Mail Health, barcoded stamps, and increased automation.

GLS is also expected to continue growing and expanding, which is good news given that the division generates half of group profits. Royal Mail CEO Simon Thompson was also upbeat about resolving the company’s dispute with its workers. He cited a 75% decrease in disputes from workers, a positive indication that a pay deal may follow. He also mentioned that Royal Mail is well positioned to increase prices by 4% on average, as the brand has strong pricing power. More importantly, the board expects parcel volumes to stabilise slightly above pre-pandemic levels in 2024, which is a good sign.

Nevertheless, I still believe that uncertain times lie ahead for the Royal Mail share price. With a negative outlook and a business that’s heavily reliant on macroeconomic factors, this isn’t a stock I’m looking to invest in for long term growth.

The post Here’s why the Royal Mail share price is sinking appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Pandemic care package

Given that the majority of the firm’s earnings stem from package deliveries as a result of online retail sales, the decline in overall parcel volume has hit its top line. Nevertheless, there is a silver lining — total parcel volume remains higher than pre-pandemic levels.

The latest ONS data, reporting internet sales as a percentage of total retail sales, still indicates a long-term positive trend. This means Royal Mail has the potential to eventually rebound to its 2020 figures.

GLS flies higher

GLS is Royal Mail’s international arm. Compared to Royal Mail, it has a much bigger exposure to Europe and North America. In fact, GLS has done exceptionally better than its parent, growing parcel volumes and revenue by 34% and 35% respectively, as compared to 2019!

Although GLS’ revenue is no where near that of Royal Mail’s, the international business is still expected to post healthy growth levels. GLS acquired Rosenau Transport in Canada last year, and the effects of the takeover have shown to be positive.

Can Royal Mail deliver?

All this comes down to whether Royal Mail can deliver the goods. Guidance provided in its Q3 trading update was largely mixed. At that time, the impact of Omicron meant the outlook for the group was unclear. As such, guidance for operating profit in FY22 was £430m. The winding down of test kits being shipped will undoubtedly hit revenue, so that’s something to look out for. On the flip side, GLS is expected to grow its operating margin by 8%.

So, can the Royal Mail share price rebound? Possibly, but not in the short term, in my opinion. Recent UK retail sales figures have shown that consumer spending has taken a hit over the last couple of months. As the Bank of England continues to raise interest rates, borrowing and spending are expected to cool as well. Then there’s also the uncertainty surrounding how much of a hit Royal Mail’s revenue will take from the decline in Covid testing.

That being said, Q4 is usually a strong quarter for internet sales, so Royal Mail could gain from that. I believe that management will have to report incredible figures and margins for the stock to rebound. However, if the firm’s outlook sours, the stock could fall a long way. Given the risks associated with mediocre growth, I don’t think it’s worthwhile for me to buy Royal Mail shares.

The post Can the Royal Mail share price rebound? appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The bull case for Royal Mail shares

Royal Mail released its most recent trading update on 18 November. For the half-year ending 26 September, the firm’s revenues climbed 7% to £6.1bn and pre-tax profits rose by over 18 times, totalling £311m. With such encouraging results, it was no surprise that Royal Mail shares surged 7% by market close.

In addition to this, the firm announced it would be paying over £400m to investors. This was done through an immediate £200m share buyback and a £200m special dividend. It was also announced that a £67m interim dividend would be paid. Extra cash paid out to investors is a great way to draw in new ones.

Keith Williams, the group’s non-executive chair, announced that the extra capital generated from an encouraging year would be used to enhance the firm’s technological capabilities. Royal Mail has already begun taking steps towards this, recently unveiling a new fully automated parcel sorting machine at its Tyneside site. The machine can reportedly sort up to 180,000 parcels a day.  This will be crucial for managing the busy Christmas period.

And the bear case

Although the new Tyneside machine is helping out during the festive season, the firm has announced it has been struggling to hire enough part-time workers to cover the period. The main reason for this is Covid-19 related sickness and self-isolation issues. Royal Mail is bearing the brunt of this. For example, it has been reported that almost double the number of employees are absent compared to before the pandemic. If the firm can’t get this under control, it won’t be able to fully capitalise on one of its busiest business periods and frankly, it’s running out of time with Christmas just nine days away. This will impact results and could drive down Royal Mail shares.

What’s more, the Omicron variant is likely to further exacerbate this issue. Yesterday, Dr Jenny Harries, head of the UK Health Security Agency, announced that the variant would likely be the “most significant threat we’ve had since the start of the pandemic”. This is bad news for Royal Mail because if the situation keeps escalating, it’s likely to face even more worker shortages. I expect this to drive down the shares due to its effects on its results.

The verdict

I liked the look of how Royal Mail was emerging from the pandemic. A more streamlined workforce, abundant capital, and great results all filled me with confidence. However, Omicron seems to have put a quick end to my optimism. I think the next few months are going to prove tough for Royal Mail shares. As such, I won’t be adding them to my portfolio today.

The post Should I add Royal Mail shares to my portfolio today? appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.