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Royal Mail shares are near all-time lows. Here's what I'd do now

16 Feb 2020, 19:19

https://www.fool.co.uk/investing/2020/02/10/royal-mail-shares-are-near-all-time-lows-heres-what-id-do-now/?mc_cid=85bebb8447&mc_eid=6103a6388c

Royal Mail shares are near all-time lows. Here’s what I’d do now


Edward Sheldon, CFA | Monday, 10th February, 2020

The last time I covered Royal Mail (LSE: RMG) shares on 22 November, they were changing hands for around 200p. At the time, the FTSE 250 company had just issued a disappointing set of half-year results, and I said that “looking at the challenges the business is facing, I just don’t think the shares are worth the risk” and that I was “steering clear.”

Fast forward to today, and the shares are now trading at around 176p – about 12% lower than they were in November – so avoiding the stock was clearly the right move. Here, I’ll explain why the stock has continued to fall and what I’d do now.

Disappointing trading update

One reason Royal Mail shares have underperformed recently is that the group released a disappointing trading update for the nine-month period to 29 December 2019 last week. While revenue for the period was up 3.7%, and the company said that 2019-2020 group operating profit is likely to be between £300m and £340m (in line with expectations) there were several things in the update that the market didn’t like.

For example, RMG advised that the outlook for 2020-2021 is “challenging”. It also said that the ongoing industrial relations environment and delays to its transformation plan, combined with continuing economic uncertainty, increase “the likelihood” that the UK parcels, international and letters (UKPIL) business will be loss-making in 2020-21.

In addition, the group stated: “Unless we are able to make significant progress in delivering our transformation plan, our ability to meet the year 3 targets of our Journey 2024 plan will be compromised.” Overall, the trading update was not very encouraging.

Analyst sentiment

Another reason RMG shares have fallen recently is that they are still very much out of favour with analysts.

For example, just last week, analysts at Berenberg downgraded RMG from ‘hold’ to ‘sell’, stating that the company is facing challenges from trends in the postal sector such as letter volume declines. Meanwhile, analysts at Jefferies have an ‘underperform’ rating on the stock, on the back of deteriorating letter and parcel volume trends, increasing competition from Amazon Logistics, and rising wage inflation.

Overall, of the 12 brokers following the stock, four have it as a ‘strong sell’, three have it as a ‘sell’, three have it as a ‘hold’ and only two have it as a ‘buy’. And over the last month, the consensus earnings per share forecast for the 2020-2021 year has fallen about 10%. This will have contributed to the share price decline.

What I’d do now

Looking at last week’s trading update, my view on RMG remains the same as it was in November – I think the shares are not worth the risk.

Yes, the stock is cheap. The forward P/E ratio is just 8.3, compared to the FTSE 250 median of 15.5. And yes, the dividend yield is high. Currently, the prospective yield is 8.4%. Yet this is a company that is facing significant challenges right now, so it has a low valuation and a high yield for a reason.

All things considered, I believe there are much better stocks to buy right now.

Edward Sheldon has no position in any shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. 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.

Royal Mail shares are near all-time lows. Here’s what I’d do now

20 Feb 2020, 20:36

why is Rico buying hundreds of thousands of pounds worth then? does he know something you and all the analysts don't?

Royal Mail shares are near all-time lows. Here’s what I’d do now

20 Feb 2020, 21:17

daveyeff wrote:why is Rico buying hundreds of thousands of pounds worth then? does he know something you and all the analysts don't?


Another incentive for him to transform the business so when the damage is done the share price will rocket and he'll be onto a nice windfall.

Royal Mail shares are near all-time lows. Here’s what I’d do now

23 Feb 2020, 03:03

ssdd wrote:
daveyeff wrote:why is Rico buying hundreds of thousands of pounds worth then? does he know something you and all the analysts don't?


Another incentive for him to transform the business so when the damage is done the share price will rocket and he'll be onto a nice windfall.

Not if we all have our way!

Royal Mail shares are near all-time lows. Here's what I'd do now

25 Feb 2020, 18:03

£1.66

Royal Mail shares are near all-time lows. Here's what I'd do now

26 Feb 2020, 15:18

Royal Mail Group’s 8.1% yield looks unmissable. Here’s what I’d do today

https://www.fool.co.uk/investing/2020/0 ... -do-today/

Never mind the quality, just look at that income. The collapse in the Royal Mail Group (LSE: RMG) share price has driven the yield to an eye-watering 15%, but don’t be fooled by that headline number, because it’s about to fall sharply.

As Royal Mail’s problems mount, management is cutting the dividend from 25p to 14.33p in the year to 31 March. That’s yet another blow for loyal investors, although it is still forecast to yield a handsome 8.1% this year. Should you be tempted by this troubled enterprise?

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The controversy surrounding Royal Mail’s privatisation in October 2013 seems an awful long time ago now. The complaint then was that the Government had massively undervalued the stock (and shortchanged the taxpayer), as the share price shot past its 330p initial pricing, to top 600p. Now it looks massively overvalued, trading at just 167p today.

Right Royal disaster
This makes Royal Mail a terrific example of why you should heed the first part of billionaire investor Warren Buffett’s famous maxim, “be fearful when people are greedy,” and shun any stock where investors are getting over-excited or looking to make a quick buck.

So should you now follow the second part of the saying, and be “greedy when people are fearful”? Investors are certainly fearful of Royal Mail right now. Its share price has fallen a whopping 40% in the last 12 months, and trades 70% down on two years ago.

There is some good news out there. This month’s trading update showed the company on course for group operating profit of between £300m and £340m for 2019/20 (before the impact of IFRS 16 accounting changes).

However, the share price still plunged as management warned of “challenging” times ahead, with letter volumes set to fall faster than expected, while its UK parcels and letters business is heading for a loss, amid the uncertain business environment.

Tough market
The Communication Workers Union (CWU) is threatening a national strike in a dispute over pay, over the plans to bring in automated parcel sorting and changes to working practices as part of the firm’s £1.8bn transformation plans. The threat of a strike is bad news for Royal Mail, and good news for rival companies in the crowded courier market as those rivals will pick up any dissatisfied customers. Competition from Amazon Logistics will also strike fear into many.

Even more worryingly, Royal Mail’s net debt has soared from £470m to £1.37bn, while broker Liberum has added to the misery by warning that its transformation strategy may be undeliverable, as margins are squeezed by poor productivity and declining revenues from letters.

Brave contrarians may be tempted by today’s valuation of just 5.5 times earnings. However, that is expected to jump to 17.4 times this year, due to a forecast 31% drop in earnings this year, followed by another 46% fall next.

The earnings outlook for 2022 is brighter, but I’ve heard enough. Management faces a long-term battle, and there are dozens of stocks I’d buy ahead of Royal Mail right now.

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He even anticipates that the dividend could grow nicely too — as this much-loved household brand continues to rapidly expand its online business — and reinvent itself for the digital age.

With shares still changing hands at what he believes is an undemanding valuation, now could be the ideal time for patient, income-seeking investors to start building a long-term holding.

Royal Mail shares are near all-time lows. Here's what I'd do now

26 Feb 2020, 18:34

I will cash mine in when they reach ten quid :Very Happy :thumbup

Royal Mail shares are near all-time lows. Here's what I'd do now

29 Feb 2020, 05:26

This guy RICO BACK is a fool he has danced his merry fools dance we cannot abide by him as shareholders the fool is costing us all at his gambling habit for his own ends really do we want our investments into the penny's of the pound this guy is not fit for leadership of the high office of a profitable company not less one so important in our nations history! It is time his running this asset of the nation down be further investigated for which we need all of his tax receipts acquisitions of shares made public. If a football manager had such a poor showing he would be sacked by now this is now a penny share scheme he wants reporting to the financial ombudsmen in effect firing if those who are around him don't because they not doing so would be tantamount be guilty of the same offence of financial mismanagement.

Royal Mail shares are near all-time lows. Here's what I'd do now

01 Mar 2020, 10:15

Rico Back must have lost a fortune in his recent share acquisitions and he will lose a lot more until this Coronavirus outbreak dissipates.

Royal Mail shares are near all-time lows. Here's what I'd do now

01 Mar 2020, 21:40

I may be wrong, but I believe Rico Back is manipulating the market to get the shares rock bottom. He only seems to buy shares when the price of them goes down. It may seem far fetched but I believe he's the head of some sort of a consortium or maybe a rival firm that's buying shares on their behalf. Bear in mind once he or the consortium has got 51% hes got control of Royal mail

Royal Mail shares are near all-time lows. Here's what I'd do now

02 Mar 2020, 07:33

I believe there's something in Rico's contract to say he has to own some RM shares.

If you want to make money from equities, the time to buy is when they're low. Although he bought plenty at much higher prices than now, so those will obviously be giving him a paper loss at the moment.

According to this website, Rico currently owns 1,701,921 shares in RM, with a value at the time of writing of over £2.75 million. That might sound like a lot, but there were 1 billion shares issued, so his holding only equates to 0.17% of the total.

He's got a long way to go until he's anywhere near a major shareholder.
Last edited by RobertT on 02 Mar 2020, 17:52, edited 1 time in total.

Royal Mail shares are near all-time lows. Here's what I'd do now

02 Mar 2020, 17:21

just as well he's not then.

Royal Mail shares are near all-time lows. Here's what I'd do now

02 Mar 2020, 22:53

DICKIEG wrote:I may be wrong, but I believe Rico Back is manipulating the market to get the shares rock bottom. He only seems to buy shares when the price of them goes down. It may seem far fetched but I believe he's the head of some sort of a consortium or maybe a rival firm that's buying shares on their behalf. Bear in mind once he or the consortium has got 51% hes got control of Royal mail

As has been mentioned Rico's shareholding is a tiny percentage of available shares ,I doubt he will ever own the company

Royal Mail shares are near all-time lows. Here's what I'd do now

03 Mar 2020, 06:37

You're all being so nasty and cynical about poor old Rico and his share buying exploits :no no ... It's obvious to me that he is buying all these shares now so that when the business transformation plans are completed and the share price is up to £10 he's going to hand all his shares over to the employees as a thank you for all their hard work.

Royal Mail shares are near all-time lows. Here's what I'd do now

15 Mar 2020, 22:46

wacko74 wrote:You're all being so nasty and cynical about poor old Rico and his share buying exploits :no no ... It's obvious to me that he is buying all these shares now so that when the business transformation plans are completed and the share price is up to £10 he's going to hand all his shares over to the employees as a thank you for all their hard work.

And who of me it it too say anything beyond this but don't put your mortgages on it!

Royal Mail shares are near all-time lows. Here's what I'd do now

16 Mar 2020, 11:26

Wouldn't like to be a manager looking for a new job .When a future Employer asked you, we're you a manager at Royal Mail in its Declining year with others, Would you be able to make my Company Expand or do you only know How to run a business into the ground .Will he or she get another Manager position in any other Company ???????

Royal Mail shares are near all-time lows. Here's what I'd do now

16 Mar 2020, 15:58

royalmailchat wrote:Wouldn't like to be a manager looking for a new job .When a future Employer asked you, we're you a manager at Royal Mail in its Declining year with others, Would you be able to make my Company Expand or do you only know How to run a business into the ground .Will he or she get another Manager position in any other Company ???????



Senior managers, directors, CEO'S etc always seem to manage to get further positions in other companies, regardless of any previous track record of failure and mismanagement.

Royal Mail shares are near all-time lows. Here's what I'd do now

16 Mar 2020, 16:07

wacko74 wrote:
royalmailchat wrote:Wouldn't like to be a manager looking for a new job .When a future Employer asked you, we're you a manager at Royal Mail in its Declining year with others, Would you be able to make my Company Expand or do you only know How to run a business into the ground .Will he or she get another Manager position in any other Company ???????



Senior managers, directors, CEO'S etc always seem to manage to get further positions in other companies, regardless of any previous track record of failure and mismanagement.

same as premier league managers. totally shite and get the team relegated but they ALWAYS get another team to manage.??

Royal Mail shares are near all-time lows. Here's what I'd do now

04 Apr 2020, 02:17

daveyeff wrote:
wacko74 wrote:
royalmailchat wrote:Wouldn't like to be a manager looking for a new job .When a future Employer asked you, we're you a manager at Royal Mail in its Declining year with others, Would you be able to make my Company Expand or do you only know How to run a business into the ground .Will he or she get another Manager position in any other Company ???????



Senior managers, directors, CEO'S etc always seem to manage to get further positions in other companies, regardless of any previous track record of failure and mismanagement.

same as premier league managers. totally shite and get the team relegated but they ALWAYS get another team to manage.??

It's because they are fluent in shite and we meaning them getting out of the same hole they dug us all into!

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