Royal Mail (RMG) - Are they in big trouble?

Tuesday, 28th May 2019 10:23 - by Rajan Dhall

Last week saw Royal Mail slashing its dividends from 25p to 15p in a bid to fund changes to its business model to fit in with the changing consumer landscape.  Online sales have laid waste to a host of high street names in recent years, with the likes of Amazon taking a lion's share of the market, and with its traditional revenue earners having succumbed to the internet age, the company is forced to adapt and evolve.  New CEO Rico Back has earmarked an ambitious 5-year plan to turn Royal Mail's fortunes around, promising to invest £1.8bln into the services which will look to expand operations internationally.  

Strategically, it is hard to see what other approaches Royal Mail can take.  The share price has been hit hard over the past year with the price just above £6.30 in May 2018, and now languishing above £2.00 though we dipped below here last week.  Fears that a Corbyn led Labour government would consider renationalising the postal monopoly have also played a key part in the slump in the share price.  Responding to these fears, the CEO maintained that irrespective of ownership, changes need to be made and this will have also served to undermine investor confidence.  

Investors have also balked at some of the remuneration packages offered to its management team, so confidence is clearly running low.  Recall the initial offering price in 2013 was at £3.30, and we are now trading at a 35% discount

There are some very interesting chart points on the daily chart below. First of all on the left-hand side at the largest point of the bell curve 279p represents the price where most shares changed hands. This is significant as if the price gets back to that level it will be a massive point of reference. This could be as many traders/investors bought there and it could be a breakeven point. Elsewhere there has been a lot of volume interest where we are now. Interestingly the daily candle with the highest volume is the one that supported price (positive close), so there seems to be some buying interest down there. Lastly, a break of 231p could indicate some bullish momentum and then a channel trendline break would add an extra dimension to the idea for traders/investors looking for some value. Always remember trading against the underlying trend is a dangerous strategy. 

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.