Royal Mail Group (LSE: RMG) shares have had a very volatile few years, with an impressive Covid recovery soon heading south again. Today, the Royal Mail share price is down a shade short of 60% over the past 12 months.
I’ve examined the company a few times, but I’ve never been convinced enough to buy. So what about now?
The current year, which ends in March 2023, looks set to be a tough one for earnings. The first quarter brought an 11.5% fall in revenue, and an adjusted operating loss of £92m. That’s close to losing £1m per day.
Better forecasts
Analysts expect a much better year next year, with Royal Mail’s price-to-earning (P/E) ratio hitting only a little over five.
We should treat broker forecasts with caution. But when I see something looking so cheap compared to the FTSE 100‘s long-term average P/E of around 14 to 15, I take note.
The forecast dividend yield for this year stands at 10%. I won’t put too much confidence in that at this relatively early stage. But it gives me some added encouragement.
Strike action
The financial situation is presumably not what’s keeping investors away from Royal Mail shares, though. Just a few days ago, the company gave us an update on the current big concern — industrial relations.
The Communication Workers Union (CWU) has already held three national postal strikes. And there are two more coming, on 30 September and 1 October.
Royal Mail, last week, said: “After five months of talks, including three dispute resolution procedures, no agreement has been reached with the Communication Workers Union (CWU).”
It added: “The CWU has blocked any meaningful discussion on the change agenda the company has set out, and has not put forward any viable alternatives that will fund further pay increases.“
Next steps
As a result of the lack of progress, Royal Mail is taking two new steps. Firstly, it suggests taking the dispute to the Advisory, Conciliation and Arbitration Service (Acas) to seek resolution.
Royal Mail will also “review or serve notice on a number of historic agreements and policies which are currently being used by the CWU to frustrate transformation, and intends to move to a more modern industrial relations framework designed to make the business more agile, and able to compete more effectively.”
In short, Royal Mail is up against increasing competition. And that competition is from more efficient companies with more cost-effective working practices.
Buy, or not?
I remain torn. There’s clearly a solid long-term business here, and Royal Mail has shown impressive resilience in the face of the competition. I reckon its market share is holding up really quite well.
But unless it changes and starts working in more flexible, efficiency-focused, ways, I fear it could lose its advantages.
Does the current low share price valuation compensate sufficiently for the risk raised by the firm’s industrial relations nightmare? I just don’t know, and for that reason I’ll stay away again. I still feel I might be missing a good long-term buy, mind.
