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Christmas postal deliveries could still be under threat as Royal Mail’s latest plea to halt a strike from its workers looks to have fallen on deaf ears. Earlier this month, the Communication Workers Union, which represents more than two thirds of Royal Mail’s workforce, voted overwhelmingly in favour of a strike, due to conflict about leadership changes and strict targets. In a bid to avoid disruption at the height of the festive season, the postal provider has offered to enter into discussions with the union if it promises not to take industrial action for the rest of the calendar year. However, CWU has remained resolute, saying on Twitter that Royal Mail’s ‘words fool nobody’ which caused share prices to fall 4.5 per cent this week. The stock has rallied slightly since then, now standing at 212.11p at the time of writing, but overall it has slumped 40% in the past year.
So, what’s next for Royal Mail – are the shares worth buying in anticipation of resolution to the union dispute or will it fail to deliver in the next few months?
The fact that the stock has fallen 40% in one year is unlikely to have instilled confidence for investors. The proposed strike is also a worry – the CWU has made it clear that it’s willing to play hardball and a pre-festive walkout has the potential to cause massive disruption. The delivery service market is becoming increasingly crowded, and many of Royal Mail’s competitors operate on a more agile basis so the threat of industrial action could be enough to get customers to look elsewhere for Christmas deliveries. Royal Mail really need the CWU to agree to postpone the strike action, which was backed by more than 97% of voters, making it the largest ‘yes’ vote for national industrial action since the passing of the Trade Union Act, until the New Year to avoid jeopardising Black Friday and Christmas deliveries.
Even before the threatened strike action, it had not all been plain sailing for Royal Mail though. In May, the group announced its operating profits had fallen 34% to £376m – not completely surprising news as the mass exodus towards email continues but enough to trigger a share price drop of 17% in that month alone. Tighter GDPR laws have also led to a drop-off in mail volumes although political party election campaigns are exempt from some legislation so the news of a forthcoming General election should be good news for Royal Mail.
Back in October, the postal group announced plans to invest £1.8 bn in its UK service over the next five years, with the hope of delivering an operating profit margin of over 4% in 2021-22, which has been outlined as one of three new key priorities.
Earnings per share have also declined by a third in the year till March and analysts predict a further fall of 24% in the forthcoming year. That leaves shares on a forward price earnings ratio of just 9.5 this year and 8.6 next, which is a significant drop for shareholders.
Opinions are divided on whether Royal Mail can deliver again – in the long-term much will depend on the success of its ambitious investment plan, and in the short term, whether it can smooth the waters enough with its union to prevent strike action ruining Christmas.
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