There is more bad news from Royal Mail (RMG) this morning as it lowers the range of its full year profit forecast and guides for a larger-than-expected decline in letter volumes.

The shares dive 10.5% to 269p, close to all-time lows. Operating profit (before transformation costs) is expected to come in between £500m and £530m in the March 2019 financial year, against previous guidance of £500m to £550m. You can read the update in full here.

AJ Bell investment director Russ Mould says: 'The 330p issue price from Royal Mail’s IPO is no longer looking either the bargain or scandal which different voices argued it was back in 2013.

'Shares in the delivery firm haven't traded above that level since November last year and today's update is only sending the share price further into the doldrums at 271.8p.

'Letter volumes are declining even faster than expected amid business uncertainty, but this problem also reflects structural changes as an increasing amount of communication moves online.

'STRUGGLING TO DELIVER EFFICIENCIES'

'And, at the same time, the company is really struggling to deliver the efficiencies in its operations it hoped for despite the progress it made in getting the unions on side last year.

'Areas of growth like parcel volumes in the UK and the international GLS division face their own problems, with the rate of expansion set to be deliberately slowed in the latter business as the focus moves to getting costs and margins under control.

'All told, there is a huge amount for CEO Rico Black to do if the business is to have a chance of getting back above 330p per share, or even the 455p closing price on its stock market debut.'

A key question is whether investors will continue to be paid so handsomely for their patience. Unless performance improves, speculation over the fate of the dividend is likely to mount.

At the current share price and based on the 24.62p forecast for the March 2019 year, the company is yielding more than 8%, usually a sign that a dividend is in the danger zone.


Issue Date: 29 Jan 2019