Royal Mail share price: Postal operator needs to deliver cost savings

Written by: Tsveta van Son
March 11, 2020

Hargreaves Lansdown reckons that Royal Mail Group (LON:RMG) needs to put its cost savings plan into action, Citywire reports. The comments came after the privatised postal operator lowered the upper end of its profit guidance and warned that letter volumes would decline more than previously expected. 

Royal Mail’s share price fell sharply in the previous session as investors digested the update, giving up 13.27 percent to close at 260.80p. This morning, the shares have extended yesterday’s losses, having shed 0.67 percent to 259.05p as of 08:05 GMT, as compared with about a 0.03 percent gain in the mid-cap FTSE 250 index.

HL weighs in on Royal Mail

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Citywire quoted Hargreaves Lansdown analyst  Nicholas Hyett as commenting yesterday that news that Royal Mail’s capital markets day was being pushed back to after the full-year results “suggest to us that the all-important cost savings may also be proving harder to deliver than hoped”.

“Those efficiency gains remain central to the Royal Mail investment story, and if they can’t be delivered then there’s nothing to protect the group from the pains of an economic downturn in the UK,” the analyst pointed out, adding that those worries explained why the privatised postal operator currently offered a prospective yield of eight percent.

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Other analysts on group

The Financial Times meanwhile quoted Berenberg as commenting that although parcel growth continued to hold up, “the acceleration of the mail volume declines will leave the outlook for 2020 in doubt and increase pressure on management to take more fundamental action to stabilise the business”.

The Guardian quoted John Moore, senior investment manager at Brewin Dolphin, as noting that at “this point of uncertainty, some vision for the future from management – be that a further cost-saving programme or a strategic move on [European parcels business] GLS – would be a welcome focus for investors”.

As of 08:24 GMT, Wednesday, 30 January, Royal Mail share price is 259.05p.