November 22, 2019, 12:01am, The TimesRoyal Mail investors get the message
No wonder Jeremy Corbyn is so keen to own the Royal Mail. It’s hard to think of a more action-packed corporate parcel: a 70 per cent pay revolt, the exit of an “overboarded” chairman, a £50 million Ofcom fine, metronomic profit alerts. And all topped off with a legal ruck over a postie strike for Christmas.
Just one thing, though: does the taxpayer actually want the Royal Mail back? Yes, Jezza says he’ll only pay a knockdown price. But what exactly is that? The company’s making a fine job of knocking it down all by itself — another 14.2 per cent off on the half-year figures, leaving the shares at 198½p. It’s now valued at sub £2 billion. Was it really only a month ago that the CBI was suggesting Labour might pay £2.6 billion for the business? If only the shareholders could sell the company to Britain’s biggest business lobby group.
Yes, things have moved on a bit since Sir Vince Cable was getting vilified for floating the Royal Mail, in 2013, for a scandalous 330p a share. It was a listing 20 years in the making, after three failed attempts. And, when the shares took off on day one, soon to be pushing £6, Labour declared it a “botched” privatisation. “Crony capitalism at its worst” was the view of one chap from Mr Corbyn’s locale: Richard Watts, leader of Islington council.
Happy days. And now? Well, its German chief executive Rico Back, drafted in from a different part of the group in June last year with a preposterous £6 million signing-on bonus, has just delivered his latest view of prospects. And it doesn’t make the prettiest reading.
True, first-half UK letter revenue was the “best for five years”, even if underlying volumes fell 8 per cent. And parcel income — the growth bit — was up 5.6 per cent. But the five-year “transformation” programme, mixing cost cuts and £1.8 billion of investment, is already “behind schedule”. Not bad for a plan unveiled as recently as May.
Moreover, excluding the boost from the election, attrition in the letter business is getting worse, with volumes down as much as 9 per cent this year and 8 per cent next: both up to two percentage points worse than forecast. Add in tricky industrial relations, “cost headwinds” and flatlining GDP and guess what? The UK business could next year be heading for breakeven or even losses. A fair bit adrift, then, of analyst forecasts of £116 million profits. As Berenberg analysts put it, breakeven amounts to a “37 per cent cut” to group profit forecasts.
Of course, Mr. Back could be sending a message to the unions: agree to raise productivity or imperil the business and jobs. And the rocky outlook is not all his fault. His predecessor Dame Moya Greene left quite a mess in the post room before waltzing off with a £915,000 leaving gift.
But RBC analysts reckon “shareholders are set to wait until 2024 to see if Royal Mail can really execute plans that then might deliver upside”. For some, Jezza’s bid can’t come soon enough.