- 8 January 2016
- Transport / Logistics Services
Major City stockbrokers Liberum have advised investors to sell their stock of Royal Mail. The company believes that the massive growth in e-commerce will not benefit the UK postal operator as much as it will operators and that the business is overstretched on a number of fronts.
The mail operator is set to see a decline in mail volumes that the stockbroker do not believe will be offset by growth in parcel volumes. Though Royal Mail has invested heavily in capacity for its parcels business and has a well established national delivery network, it is felt that Royal Mail’s competitors such as DPD, UPS, DHL and Yodel are better placed to benefit from the double digit growth in this industry.
One of Royal Mail’s major customers, Amazon, is developing its own final mile delivery market in the UK. With Amazon’s parcel volumes passing through the Royal Mail system accounting for as much as 35% of its total, this could be a serious threat to the national mail operator. Where Amazon’s delivery network isn’t comprehensive in the UK as yet, it is expected to grow significantly in the coming year or so.
Liberum has acknowledged that Royal Mail is undergoing a cost cutting drive but this, the stockbroker believes, will not be offset by the projected loss of business in the mail sector or Amazon’s gradual withdrawal.
Royal Mail’s pension fund is in deficit and some time soon it will either have to make a one off payment to compensate for the deficit or renegotiate the pensions with its heavily unionised staff.
Finally, with the recent privatisation of the mail operator, there is some uncertainty as to how the regulator OfCom will regulate the company. This uncertainty is bad for investors at present, and could get worse should another company attempt to go into direct competition with it in a newly liberalised market in the coming months.