7.10.13

Should you buy Royal Mail Shares?



The government is planning to sell some of its shares in Royal Mail, which is intended to be listed on the London Stock Exchange. Investors are expected to make a profit as the shares are said to be undervalued. The minimum buy for retail investors is £750.

4 Reasons to buy

1. Cost cutting
There is a continuing restructuring programme at Royal Mail which should lead to costs falling by 2pc-3pc a year.

2. Dividends
Rumoured to be around 7% which is attractive in a low interest rate environment

3. Distribution network
Royal Mail has a strong distribution network which cannot be easily replicated

4. Property
Royal Mail has surplus freehold property in central London that could be worth £500m. Any proceeds from a sale would be returned to shareholders.

2 Reasons to Not Buy

1. Workforce
The company faces strike threats from its unionised workforce.

2. Letters
Every 1pc fall in letters volumes cuts the company's sales by £75m and it expects an annual decline of 4pc-6pc. A 9pc decline would mean £225m a year less cash coming into the business than expected. (£200m is the amount expected to be spent on dividends)