Parcels strength to again offset letters decline when Royal Mail delivers latest trading news

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Royal Mail Group PLC (LON:RMG) will deliver a first-quarter trading update on Tuesday, with shareholders hoping that once again growth in its parcels business will compensate for a decline in letter delivery volumes.

In its full-year results announcement in May, Royal Mail’s management, according to Liberum Capital, “sounded a clear note of caution on Letters revenue”.


“The recent introduction of tighter rules on customer marketing with the new GDPR [data protection] rules has an uncertain impact on marketing communications activity. At the very least, we expect the uncertainty to dampen activity,” Liberum predicted.

“Combined with more general business uncertainty, this is expected to push the current year trend in Letters volumes to (or beyond) the worse end of management’s long-term guidance range of annual falls between 4% and 6%,” the broker added.

Liberum said Royal Mail has had little success over the past four years in growing parcels revenue more quickly and it does not expect this to change much “even with the momentum from last year seeing the strongest Parcels revenue growth in four years”.

Growth in tracked products has been a highlight but even here, grumpy old Liberum notes, the comparative figures from a year ago start to get tougher.

Analysts will likely be keeping an eye out for progress on targeted productivity improvements, which Royal Mail said in May would be towards the upper end of the targeted 2-3% range.

Jobs and wages
The first of this week’s big batch of UK data will be released today, with the latest unemployment and average earnings numbers due at 9.30am.

The latest set of GDP and production data suggested that the UK economy should show a bounce back from the weak first-quarter and there should be more of this evidence in the jobs data.

Helal Miah, investment research analyst at The Share Centre expects that the unemployment should hold around the lowly rate om 4.2%.

Meanwhile, he said, more interest will be on the rate of wage growth, which has been around 2.5% all year, still slightly lagging CPI inflation which is forecast to increase to 2.6% year-on-year when the June number is released on Wednesday.