Royal Mail shares: are professional traders promoting out?
Shares in Royal Mail have risen strongly since it floated on the stock market – then fallen almost as quickly. Has this prompted once-enthusiastic fund managers to sell? 
The Royal Mail share price is back where it was on the first day of trading
Photo: ALAMY
Investors who bought shares in Royal Mail’s flotation last year have experienced something of a roller-coaster ride.
The shares rose quickly from the flotation price of 330p to close at 455p on the first day of trading and went on to peak at 615p on January 15. But they have since crashed back to about 454p, with a further fall today following the release of a trading update in which the company warned that parcels revenues for the year were likely to be lower than expected.
Royal Mail share price
Many fund managers were enthusiastic about the shares in the run-up to the float. We asked them if they still felt so positive or if they had decided to take profits and sell their shares.
‘We sold for a tidy profit but may buy again’
George Godber, who co-manages the Miton UK Value Opportunities fund, which has produced healthy gains since its launch last year, was an early fan of Royal Mail.
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As the shares went on sale last year he described Royal Mail as “a fascinating business” and “a pretty incredible set-up”, while its chief executive, Moya Greene, was “very impressive indeed – she’s done an amazing job”.
Mr Godber wasn’t allocated any shares in the flotation so he bought them in the market as soon as he could, paying 425p.
But he has since sold them, at prices of 560 and 525p, making a handsome profit.
He said today: “We sold when the company issued the significant profit downgrade in late May.
“In the short term – over the next six months – the shares are due a turbulent time. The company needs the regulator to address the competition threat – a viable universal service is enshrined in law, but the new entrants such as TNT are picking off the valuable postcodes. And Amazon is withdrawing its entire business from Royal Mail – this is very significant, accounting for perhaps as much as 6pc of total parcel volumes.”
But he said Royal Mail’s longer-term future was bright. “It’s immensely cash generative, and with the property disposals over the next few years the company will be debt free and investors can enjoy significant dividend growth, probably the best in the FTSE 100.
“Absolutely I can see myself buying back in – I think the long-term value could be exceptional – but I need to see stability in profit forecasts.”
‘We are committed investors in Royal Mail’
Threadneedle was one of the large investment groups to receive an allocation of Royal Mail shares in the flotation. At the time it pointed to advantages such as the growth in the parcels business, a long-term transformation plan and a well respected brand.
The fund group remains supportive today, despite the reversal in Royal Mail’s share price.
“Threadneedle is one of Royal Mail’s largest shareholders with 1.8pc of the total and is a committed investor in the company,” a spokesman said.
What stockbrokers’ analysts say
Gert Zonneveld, Panmure Gordon: “Parcel revenues in the first quarter suffered from increased competition and a stronger sterling, but this should be offset by a good performance in letters and better than expected cost performance. We retain our ‘hold’ recommendation and 485p target price.”
Robin Speakman, Shore Capital: “The overall group revenue performance on our forecasts for the full year looks unchanged at present, with margins and profitability forecasts retained. On cash flow valuation grounds, we retain a ‘buy’ stance.”
Robin Byde, Cantor Fitzgerald: “Royal Mail has underperformed the FTSE100 by 9pc in the past three months and its valuation is now more attractive. The dividend yield is 3.6pc. However, in our view, the company faces a considerable volume and pricing challenge in parcels in the next 18 months. We maintain our ‘sell’ recommendation.”
John Lawson, Investec: “Royal Mail has a lot of moving parts, but the stock is likely to weaken further in the near term. Risks include a worsening of competitive pressures, unfavourable regulation and poor Christmas trading.”
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