Each week we take a look at what’s in store for The Virgin Investor in the following week. This week the spotlight is on the release of a Christmas trading statement from Royal Mail.

The week beginning the 09/01/17 (Morrisons, Tescos, Sainsburys and Marks and Spencers), saw a release of a raft of supermarket Christmas trading statements. The general result was that supermarkets saw stronger than expected sales over the Christmas period driven in particular by strong online sales.

For the week beginning the 16/01/17, we take a look at the UK’s largest letter and parcel delivery company (Royal Mail) as they prepare to release details of their crucial Christmas trading period.

 

Royal Mail

Index

FTSE350

Market Cap

£4.49bn

Sector

Postal services

Year End

March

 
Activity

Trading Statement

Date of Activity

19/01/17

 
Opportunities
  • Recent pressure on the share price caused by Brexit and the weakening of the GBP hits the Royal Mail hard as most of its revenue is generated in GBP. Should there be an improvement in the sentiment towards Brexit, GBP would strengthen and RM shares may benefit.
  • A number of retailers have so far reported better than expected online sales over the festive period. Positive online sales usually means positive parcel sales (RM has 50% of the UK parcel market) and this may give a boost to the share price.
Risks
  • Decline in letter volumes continuing (RM estimates by between 4-6% per year) and revenue growth depends on parcels growing to make up the shortfall.
  • Market concern around Brexit and subsequent weakening of the GBP hits the RM hard as most of its revenue is generated in GBP.
  • Ongoing consultation on the RM’s final salary pension scheme (due for March 2017) which is set to move to defined contribution scheme is likely to stoke unions into action and could be costly to ongoing operations.
 
Summary
  • If the upcoming trading statement highlights higher than expected parcel sales, then expect to see a share price jump. Further, at the moment there is a lot of uncertainty over Brexit and as begins to be managed over the next few months, we may expect to see GBP sure itself up which would help support the RM share price.
  • Consideration has to be given to the pension consultation due for March 2017, where a switching of employees to a defined contribution scheme is almost a necessity to help RM manage the huge pension deficit it has built up. With this material proposed change to a large part of the workforce, there is potential for costly union disruption to drag on for a significant period of time, suppressing share price.

The content of this article is the view of the team at The Virgin Investor and does not constitute investment advice. The value of any investment can go up and down.

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