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Why I’d shun the Royal Mail share price as strike dispute deepens

I recently explained why I’m keeping away from Royal Mail Group (LSE: RMG) shares, and the latest developments have hardened my bearish stance.

A vote by the Communications Workers Union in favour of a national strike was worrying enough, although discussions with management were ongoing and it seemed as if there was still time to reach some kind of deal and avoid disruptions to the Christmas and election mail.

Legal action

But the company is now seeking a High Court injunction, claiming the ballot was “unlawful and, therefore, null and void“. That’s not a sign an amicable agreement is on the cards.

Royal Mail, in its update Friday, alleges union members were put under pressure to vote ‘yes’ by a number of means. These including being asked to intercept their ballot papers at delivery offices before they were delivered to their homes, and being encouraged to open and fill them in “with their colleagues present and filming or photographing them doing so, before posting their ballots together at their workplace postboxes.”

If the High Court rules in favour and annuls the ballot, will that fix things for shareholders? I don’t see it. Even if all of the allegations are true, we still saw a 97% vote in favour of action. How ever you look at it, that’s a strongly antagonistic and unionised workforce.

Lasting damage

It couldn’t come at a worse time, and I don’t mean just Christmas. In the old monopolistic days, we just had to put up with strikes. But in today’s highly competitive environment, a Royal Mail strike damaging people’s Christmas deliveries should have competitors rubbing their hands.

If you were a company sending all your parcels via Royal Mail and they ruined your Christmas business for you, wouldn’t you switch to a competitor? I would, and my move would be permanent.

Reading Friday’s allegations of vote rigging, true or not, would firm up my thinking too — there can’t be many companies keen to do business with what sounds like bad old 1960s union dictatorship.

It all comes at a time when Royal Mail is seeing profits tumbling, has slashed its dividends, yet is still looking to invest around £1.8bn over the next five years in its UK operations. And that’s just to catch up, in a business in which its competitors have raced ahead.

Poor service

It’s only one small thing, but at a time when other delivery firms can give us one-hour delivery slots, and even show us a real-time map of the approaching delivery van, Royal Mail customers are still stuck with ‘maybe during daylight hours, if you’re lucky, and if the sun doesn’t set too soon’. At best, RM Special Delivery can manage before midday, but that’s expensive — and it’s not super speed I want, it’s predictability.

With the shares on a P/E of under 10, if Royal Mail can get its act together then it might still be good for a turnaround investment — though at best I think there’ll be worse to come before any upturn.

But while I have fears the company could be stuck on a slow-death spiral, there’s just too much risk for me.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.