RMG "update is not nasty enough to trigger a big correction"

[TrueBlueTerrier]

Royal Mail PLC: RMG "update is not nasty enough to trigger a big correction"

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Shares in Royal Mail are treading lower with investors wanting to hear more on how RMG would expand.

Royal Mail PLC (LON:RMG) shares are headed lower in line with much of the global FX space; stocks are under pressure as concerns continue to mount concerning an Asian slowdown.

Further, RMG has issued a trading update this morning; "numbers are in line with estimates but a unexciting read on the whole and do little to allay concerns about the company’s outlook. The group’s parcel business drove revenues, up 8% on a LFL basis for the nine months which ended in December however overall group volumes were flat," notes Mike van Dulken at Accendo Markets.

Looking at the Royal Mail update we see total group LFL revenue was up 2%; a figure van Dulken reckons is certainly not strong enough to inspire long term positivity over the group.

"We have to remember that this update covers the Christmas period – the busiest for the firm. For that reason, questions about the sustainability of growth will come into question until the release of the FY numbers in May this year. The group have been gearing to sized-based pricing approach which drove the growth in revenue during the period - seems to be the right strategy as parcels account for 51% of group sales," says van Dulken.

According to the Accendo analyst it is difficult to be too optimistic on Royal Mail; investors will want to hear from management on expansion plans, investment in infrastructure and resources together with international acquisitions.

"That being said, the update is not nasty enough to trigger a big correction in the share price which is 80% over the issue price the government sold it off for back in October 2013. If anything, it justifies the valuation still and will not silence the political controversy which surrounds it," says van Dulken.

Markets turn lower yet on Asian fears

It appears markets have been too long without some kind of crisis to fixate on. Forget the Eurozone, now we have a new 'Asian crisis' to keep us occupied.

"The growing Asian credit crisis continues to weigh on regional shares with the MSCI Asia Pacific index set to record its longest run of weekly losses in more than 18 months. The MSCI equity gauge lost over 1% in value last night, setting the index on course for a fourth weekly decline as signs of weakness in the Chinese economy refuse to fade. The Chinese government’s decision to inject funds into the economy saw money-market rates fall, possibly slowing the recovery," says Max Cohen at Spreadex.

As well as Asian shares, global equities have broadly ended the week lower as uninspiring earnings coupled with concerns regarding cuts to U.S Fed stimulus remain firmly in the minds of investors.

There is a growing fear that Fed tapering may destabilise emerging market economies.

"Still driving the markets, the Federal Reserve tapering issue has dominated the minds of investors for some time and continues to provide volatility. Gold has retreated from a six-week high after its longest weekly rally since September 2012. Gold enjoyed bull market conditions for 12-years, spurred on by unprecedented bond buying, until Fed policy makers decided to taper stimulus in December 2013. Analysts expect the Federal Reserve to reduce asset purchases by $10 billion at each meeting to end the program this year," says Cohen.

[Danelectro]

Looking at the Royal Mail update we see total group LFL revenue was up 2%; a figure van Dulken reckons is certainly not strong enough to inspire long term positivity over the group.

According to the Accendo analyst it is difficult to be too optimistic on Royal Mail; investors will want to hear from management on expansion plans, investment in infrastructure and resources together with international acquisitions.

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I feel the start of an eceptional circumstance coming on

[Lincox]

Probably before the 21st February when they are about to cough out the back pay (assuming the agreement is ratified)