The Royal Mail share price is not having a good year. I could go as far as to say it’s having its own “annus horribilis” in 2022 (just as the Queen famously described 1992), and it wouldn’t be an exaggeration.
Down over 40% this year at the time of writing, it’s hard to see any good news coming to its rescue any time soon.
Here’s what went wrong at Royal Mail
So what’s the problem? To a large extent, it’s an all-too-familiar post-pandemic story. Royal Mail benefited hugely from the lockdown-driven increase in online shopping, and the associated larger number of parcel deliveries.
But as the world returns to something like normal, this trend has reversed. And the Royal Mail share price is suffering, along with the prices of many other post-pandemic fallers.
The firm’s £758m adjusted operating profits for FY21/22 may have been an increase of 8% on the previous year. But this missed analysts’ consensus target of £771m and was received negatively by the market.
It’s not an easy time for any company at present, but Royal Mail has yet more challenges to come.
There may be trouble ahead
The headwinds of inflation and rising costs are expected to put further pressure on the profit margins of Royal Mail.
There’s also a potential further drop in deliveries, with the cost-of-living crisis and a possible recession for the UK. This could mean a drop in demand that would hurt the stock.
The falling price leading to the likely loss of its FTSE 100 spot won’t be a surprise and it was lucky to survive the previous review. But it will automatically reduce demand for its shares as FTSE 100-based trackers rebalance to include the newly promoted companies in its place.
Yet its biggest headache remains its ongoing battle with the Commercial Workers Union (CWU), which represents more than 100,000 Royal Mail workers.
The firm has already said that its FY22/23 profits assume its current wage offer will be accepted and that a strike will be avoided. Based on the latest round of negotiations, that’s looking increasingly unlikely.
It’s clear that Royal Mail desperately needs to modernise to compete. But it’s going to be an uphill struggle to do so in a way that also keeps its staff happy.
So, is it all doom and gloom for the beleaguered share price?
What does the future hold?
The outlook may be tough, but Royal Mail does benefit from its over 500-year history and British icon status.
Its ability to raise the cost of letters delivery — an area uncontested for now — will help protect it from inflation risks.
But as the letters market continues to decline, the future money is clearly in delivering parcels. And it’s a tough market out there alongside the likes of Amazon and DHL.
So, I’ll be watching closely to see how the Sunday delivery plans of CEO Simon Thompson pan out. This could be a step in the right direction if the firm can execute it well.
For now, with its dividend looking reasonably safe, I’ll continue to hold my Royal Mail stock while I wait and see what it can deliver.
