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

04 Jun 2019, 12:26

https://www.proactiveinvestors.co.uk/co ... 21392.html

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.

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

04 Jun 2019, 18:18

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.

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

05 Jun 2019, 09:34

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.

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

05 Jun 2019, 10:32

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

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

05 Jun 2019, 18:43

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?

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

05 Jun 2019, 18:51

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.

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

06 Jun 2019, 13:52

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.

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

06 Jun 2019, 20:45

norm wrote: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.

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