Concerns about increasing staff costs and also ever declining mail volumes have meant that the Royal Mail share price has reached its lowest point since privatisation.
Obviously the current wranglings and possible industrial action between Royal Mail and the CWU are of concern to analysts and investors. A report from Credit Suisse, in particular, sounds a note of concern.
The bank has changed its rating on the British postal service company from neutral to underperform, with a target price of 325p. Well below where it is now it.
They say: “We expect worsening letter revenue trends and a costly labour deal to render 2018 earnings unsustainable.” They predict a 3% pay rise deal costing £50m a year.
The bank also notes that there are two factors behind its dim outlook on letter revenues: big banks like RBS, Santander and also the UK government are taking even more steps to cut mail volumes they send to save money. Ever decreasing mail volumes will impact Royal Mail income. Secondly, “internet use is rising fast among adults over 65, reducing the need for letters”.
The ever present reality about Royal Mail, and why the dispute seems notably old-fashioned in some aspects is that Royal Mail desperately needs to develop services salient to the new ecommerce environment. And companies such as Amazon, and the new generation of courier companies, are striding ahead.
Whilst postal workers and the CWU (communications workers union, the body representing postal workers) fixate about whether the daily post delivery should be earlier in the day, other organisations are looking at evening deliveries, Sunday time slots and same-day options for consumers. There is scope for developing parcel collection, lockers and monetising services for shoppers’ convenience. As I’ve often noted that at my local sorting office, on only one day a week can I collect a missed delivery after 14:30.
Until some key new services and developments are introduced, the Royal Mail share price will continue to suffer.