Royal Mail parcel business faces ‘tough competition’

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ROYAL Mail shares have fallen to their lowest level since their privatisation last autumn, after the group warned that parcels revenue for the full year would be lower than expected.

The stock, which has been steadily declining since a peak of more than £6 in February, dropped by as much as four per cent to 445.1p following the group’s first-quarter trading update.

It has not been as low since Royal Mail was floated in October, when shares were sold at 330p but immediately surged to 450p at the start of trading, although the sharp rise was at the time dismissed as “froth and speculation” by Business Secretary Vince Cable.

In a trading update for the three months to June 29, the group said its UK parcels business saw revenues decline as it was hit by tough competition.

It said it was also hit by the impact of changes to Amazon deliveries and the strong pound as it warned that parcels revenue for the year was likely to be lower than forecast.

The group said a focus on costs and better performance from letters meant its overall full-year forecast would remain unchanged, although it is still dependent on the result of the Christmas period.

Royal Mail said it was fighting back with measures including a Sunday delivery service for online shoppers, and the opening of its network for longer at weekends to receive goods from retailers.

But Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: “It appears that the honeymoon period is over for Royal Mail as the realities of its competitive environment intensify.”

Cantor Fitzgerald analyst Robin Byde said: “In our view, the company faces a considerable volume and pricing challenge in parcels in the next 18 months. We maintain our sell recommendation.” UK parcels revenue for the three months to June 29 fell by one per cent, although volumes were up one per cent. Letter volumes, which are expected to see a steady decline, fell by a lower-than-expected three per cent and revenues rose three per cent.

Revenues for the overall group climbed two per cent.

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