It never seems to go right for Royal Mail Group (LSE: RMG). The Covid-19 lockdown has kept us all away from the streets and left us relying on online shopping. And yet the country’s largest parcel delivery company has reported a slowdown in business due to Covid-19. Since results were released Thursday, the Royal Mail share price has fallen 7%.
That’s not as bad as it was on results day itself, which saw the price decline 12% by the close. But Friday brought a little cheer, as the FTSE 100 pulled back from what was looking like a dreadful week. And Royal Mail shares regained around half of Thursday’s loss.
The pandemic is only a recent part of the stock’s decline, with the Royal Mail share price down by two thirds over the past two years. So how did the firm cope in the year ended 29 March?
Interim executive chair Keith Williams spoke of the long-term trend towards more parcels and fewer letters. He added: “Covid-19 has accelerated those trends, presenting additional challenges.” What does he plan to do about it?
Three steps to heaven?
“We are implementing a three-step plan,” he said, adding: “Firstly, we’re taking immediate action on costs.” Royal Mail has been trying to cut costs for years now, but still hadn’t grasped the full nature of what is required. I’m still not confident it has, even now.
There’s going to be a loss of around 2,000 management jobs, which is sad in these tough times. But the company really is in need of some serious slimming down. That’s been obvious from falling earnings and the slump in the Royal Mail share price.
Royal Mail’s management has just not been able to face the reality of the size of its task up to now. And it really does so often seem to need new hands in control before reality can be properly faced. Still, better late than never, I suppose. So would I buy now? The simple answer is no, the Royal Mail share price just does not attract me.
There are things that I like in its plan. The firm does not plan to pay any dividend in the 2020-21 year. I’ve long decried the paying of dividends when a company is struggling on the cash flow front, so it’s good to hear that. But the company added that “our ambition is to re-commence dividend payments in 2021-22.” Is Royal Mail going to turn itself around in just a year? I don’t see how it can.
Royal Mail share price
Even thinking about the resumption of dividends stinks of short-term thinking to me. I want to see Royal Mail’s ambition set solely on recreating a company with growing profits, strong cash flow, and reduced debt. Take care of all that, and the dividend will take care of itself. And so will the share price.
The business is in a transition phase now that Rico Back has stood down. The company has an opportunity now, but I wouldn’t buy until I see it fully grasping that opportunity. I might miss the bottom for the Royal Mail share price. But I think I’d be greatly reducing my risks.
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.