Royal Mail: Embarrassingly Late To The Party

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An analyst commentary on Royal Mail PLC (LON:RMG) from Freetrade Senior Analyst Dan Lane.

Royal Mail Is Late To The Party

There’s a real urgency about digital transformation this morning but you can’t help feeling Royal Mail is embarrassingly late to the party.

“We have no time to waste” is a nice sentiment and those parcel hubs and better online services can’t come quick enough but the world already saw the direction of travel long before Covid hit.

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So, rather than management’s assertion that the pandemic has shown us all how customer needs can change, in reality the only people surprised by it all is them.

Our increasingly paperless world was already moving towards email and text confirmations, online vouchers and newsletters so Royal Mail’s future was always going to be in parcels.

The pandemic brought that trend forward and heightened it. And it looks like that boom in parcels over lockdown is sticking around at least for now. But, sooner or later, demand for testing kits will vanish and that pull-forward effect will fade.

That means there is a very possible scenario where letter volumes stay low and the parcels business falls too.

That’s something Royal Mail can’t afford to let happen. And with such sluggish margins, no wonder the firm is doubling down on parcels and business efficiencies.

Shareholders will want evidence of real value now though. We’ve had the group’s buybacks and special one-off dividend now. Investors will need to see that cash being put to good use rather than being returned to them. Management can’t afford to wait for another big event to jolt them into action, it has to happen now.