Royal Mail Stock Struggles
Times are looking tough for Royal Mail recently, with their need for cost savings being prohibited by weighty market factors. But is there a glimmer of hope in the future for them?
When Royal Mail posted its revenues for the first half of the year, they were up 1% on 2017. They recently announced a dividend of 8p, up 4% on 2017. However, their operating profits before costs dropped a considerable 25%.
Royal Mail’s recent struggles could potentially be due to two main factors: declining demand for postal services and increased competition.
In an increasingly paperless world, letter sending is in a constant and continuous, unavoidable decline. This isn’t just within the domestic market; commercial marketing direct mail has suffered a collapse as companies turn their strategies more towards digital relationship marketing and paper-saving sustainability efforts. The decline in demand was anticipated this time last year to be between 4-6%, but reported figures were actually closer to 7%.
Competition is also tough, with privately owned delivery companies maintaining competitive pricing and quicker delivery times, prohibiting Royal Mail from achieving the cost savings they need in order to grow their revenue.
Cost savings are also negatively affected by the cost of frequently avoiding industrial action within the group; particularly averting the proposed postal strikes over Christmas last year.
Royal Mail has been owned by the public for some time now, meaning it has plenty of capacity to improve its efficiency, boost margins and grow its profits, regardless of competition and reduced demand. However, it looks as though they are finding it more difficult than anticipated to achieve the cost savings they need.
Hope For Future
However, there is hope in Royal Mail’s future. They will continue their commitment to growing their dividend. The fact they have small levels of debt (net debt £470m) means it still has the power to deliver for the near future, and share prices currently offer a prospective yield of 7.1%.
Royal Mail is expecting to post operating profits of between £500-550m at the end of the year.