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The Royal Mail share price is rising. Here’s what I’d do now

Rico Back stepping down from his chief executive role at Royal Mail Group (LSE: RMG) on 15 May surprised me. Despite the company’s ills, I wasn’t seeing obvious signs of trouble at the top. But the market reaction was positive, and the Royal Mail share price has gained 10% since the announcement.

And it’s not just due to a return of positive sentiment to the FTSE 100 in the past couple of weeks. No, the index has gained only 5.5% over the same period. Is this apparent upturn in sentiment a sign that it’s finally time to buy Royal Mail shares?

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Before we get too excited, we should remember the past few years. Since a peak in May 2018, the Royal Mail share price has plunged 70%. That’s largely been due to trouble introducing change at the company, to keep up with the competition. But getting change accepted by the unionised labour force has not been easy. And the threat of industrial action seems to be perpetually lurking.

Perpetual dispute

Management has been claiming the workers won’t accept change, and the union has accused management of not sticking to agreements. I really don’t know who is right and who is wrong (though I can’t help seeing some of the blame falling on both sides). But the failure to resolve these problems has been very damaging to the Royal Mail share price. 

So, chronic management inability to implement change and a disgruntled workforce. Hmm, maybe I can see why change at the top was needed. Then again, is the company’s track record of stagnation due to deeper rooted problems? And will the ousting of Mr Back really result in any significant change?

He had only had a couple of years to make his mark, and established companies can be very difficult to steer on a new course. But the slow progress clearly was behind the board’s dissatisfaction. The Royal Mail’s announcement spoke of the need for an “accelerated pace of change across the business.

Royal Mail share price tempting?

But is the Royal Mail share price something we should be tempted by now? That’s our most important question. And I’m torn. The company is in for a very tough year, according to forecasts. But as my Motley Fool colleague Roland Head has pointed out, the firm does not carry much debt.

Net debt stood at a little under £1.4bn at the interim stage, against revenue of almost £5.2bn. On top of that, there’s a property portfolio valued at £3.1bn. So, the balance sheet looks good. And I see no real risk of the company falling into liquidity difficulties.

But against that, to take the plunge with the Royal Mail share price, I’d really like to see some progress on the industrial relations front. And some sign of an improving outlook for profits. I think the next six months could be telling, and I’m going to wait and watch.

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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.