The snap General Election worked modestly in favour of delivery business Royal Mail (RMG). That's one point to make from an otherwise in line first quarter trading update for the three months to 25 June.
It is also clear that growth in its parcels business continues to struggle to offset the structurally in decline letters business.
PARCELS STRUGGLING TO OFFSET FADING LETTERS
Total letter volumes fell 6% in the period, in spite of an implied 1% boost from postal votes. This saw revenue from letters slide 4%, although no firm financial figures have been disclosed. Royal Mail continues to complain about business uncertainty in the UK, but electronic communication (emails and text messages, for example) is fast replacing 'snail mail.'
The parcels side of the business saw volumes up 5% and revenue on that increase 3%, giving a scant 1% improvement in group revenues overall
Royal Mail's problems have been well documented - Shares has commented on the various risks facing the business several times in the past couple of months (earlier in July, on 25 May and on 18 May).
Cantor Fitzgerald analyst Robin Byde remains cautious. The broker flags the company's share price that has lagged the FTSE 100 by approximately 15% over the past six months, according to its analysis.
ONGOING PENSION TROUBLES
A major contributor that that dismal showing is the group's pension issues. These revolve around most recent calculations that suggest funding the scheme will cost Royal Mail £1.26bn a year going forward versus £320m of annual contributions, plus an extra £110m made by employees.
The company has announced that the scheme will close to new entrants from 31 March 2018 but has offered an alternative, less expensive, pension deal to employees beyond that. This new scheme will be provided for within Royal Mail's existing £400m a year agreed costings.
Perceived pressure on dividends going forward may also be a weight on the minds of investors, although there is currently no suggestion of payout cuts.
But it does go some way to explain why the shares have fallen from 525.5p to today's 410.5p in less than a year. That leaves the stock on 10.5 times Cantor's earnings per share estimate for the year to 31 March 2018, compared to the sector average of 13-times, says the broker.
