Why are royal mail shares so low
Royal Mail's (RMG) share price has been under pressure for several years, and there are several reasons contributing to its low valuation. Here are some key factors:
- Regulatory constraints: Royal Mail is a privatized company, but it still faces significant regulatory constraints. The UK's Postal Services Act 2011 requires Royal Mail to maintain a universal service obligation (USO), which means it must provide a minimum level of postal services to all parts of the country, regardless of profitability. This limits its ability to adjust its pricing and services to respond to market changes.
- Declining mail volumes: The rise of digital communication has led to a decline in mail volumes, which has negatively impacted Royal Mail's revenue and profitability. The company has been working to diversify its services, but the decline in mail volumes remains a significant challenge.
- Competition from parcel delivery companies: Royal Mail faces intense competition from parcel delivery companies like Amazon Logistics, DHL, and UPS. These companies have invested heavily in their networks and offer more flexible and cost-effective services, making it harder for Royal Mail to compete.
- High labor costs: Royal Mail has a large workforce, and its labor costs are relatively high compared to its competitors. This makes it challenging for the company to maintain profitability, especially in a declining market.
- Pension liabilities: Royal Mail has significant pension liabilities, which are a major burden on its finances. The company has been working to address these liabilities, but they remain a significant concern.
- Investment in new services: Royal Mail has been investing in new services, such as parcel delivery and e-commerce logistics, to diversify its revenue streams. While these investments are important for the company's long-term growth, they have also increased its costs and may not yet be generating sufficient returns.
- Market sentiment: Royal Mail's share price has been affected by broader market sentiment, including concerns about the UK's economic outlook and the impact of Brexit on the company's operations.
- Lack of growth: Royal Mail's revenue and profitability have been declining or stagnant in recent years, which has led to a lack of growth and a decline in its share price.
- High valuation multiples: Royal Mail's share price has historically traded at high valuation multiples, which makes it more sensitive to changes in its earnings and cash flow.
- Government ownership: Although Royal Mail is privatized, the UK government still owns a significant stake in the company. This can create uncertainty and make it more challenging for the company to make strategic decisions.
These factors have contributed to Royal Mail's low share price, which has been trading around 100-150 pence per share in recent years. However, the company is working to address these challenges and improve its performance, which could potentially lead to a recovery in its share price over time.