Royal Mail share price rallies as investors welcome Ofcom review

on May 25, 2016
Updated: Oct 21, 2019

Shares in Royal Mail Group (LON:RMG) have jumped in today’s session, outperforming the broader London market, as industry regulator Ofcom stopped short of recommending new wholesale and retail price controls as it delivered its review of the postal market. The news is a boost for the privatised group which recently posted a drop in pre-tax profits and warned that market conditions remained challenging.

As of 09:15 BST, Royal Mail’s share price had surged 2.21 percent to stand at 532.50p, outperforming the blue-chip FTSE 100 index which is 0.59 percent better off at 6,256.03 points. The group’s shares have gained more than five percent over the past year, and are up nearly 20 percent in the year-to-date.
Ofcom said today in a statement that its review of the postal market had found that Royal Mail’s current return on sales is at the lower end of the five to 10-percent range which the regulator considers to be compatible with a sustainable universal service. The watchdog’s findings further pointed to increased competition and innovation in the parcels sector.

“Given the declining letters market, and increased competition in parcels, Ofcom is not proposing to impose new price controls on Royal Mail’s wholesale or retail products,” the regulator said in the statement.
The watchdog noted that it would instead tighten rules on the FTSE 100 group in the ‘access’ market where rival operators collect and sort mail such as bank statements and utility bills before handing it over to Royal Mail to complete delivery. Ofcom is also set to impose new rules to protect ‘untracked’ letters which are valuable to the recipient, such as credit card bills, hospital appointments or exam results.
Royal Mail said in a short statement that it was reviewing the proposals and would “issue a further announcement in due course”.
As of 09:34 BST, Wednesday, 25 May, Royal Mail share price is 532.50p.