Potential for 'material near-term volatility' in Royal Mail dispute with CWU, says JPM

(Sharecast News) - Royal Mail shares were under the cosh on Tuesday as JPMorgan Cazenove said there is "potential for material near-term volatility and uncertainty" in the eventual outcome of the company's dispute with the Communications Workers Union (CWU).


"Since RMG's May 2019 FY results and strategy update we note a material and growing increase in industrial relations tension," JPM said in a note, with both parties currently in external mediation over Royal Mail's plans to expand its network to improve parcel handling.

"Since around the FY results the CWU has issued a number of social media and other updates to its members concerning disagreements with Royal Mail," the bank said, adding that the situation appears to have deteriorated over time.

Royal Mail and the CWU are in dispute over several matters. This includes under what conditions the second hour reduction in the working week will be granted, Royal Mail's planned parcel sorting strategy, its planned use of postal digital assistants for efficiency monitoring and the company's recent decision to move Parcelforce to a separate legal entity.

The external mediation process is expected to take eight weeks.

"The CWU has described this as the 'final stage of the resolution process'. Should this phase be unsuccessful, the union could ballot its members for industrial action, up to and including strike action," JPM said.

It noted that in 2017, the external mediation process led to an agreement between Royal Mail and the CWU, avoiding a strike. Should a strike go ahead this time around, JPM expects there to be both a direct and indirect cost, as customers move volume to other providers.

Even if a strike is avoided, this may indicate a higher level of cost inflation going forward, as RMG gives ground to union demands, JPM said.

JPM retained its 'neutral' rating and 252p price target.

At 1315 BST, the shares were down 4.8% at 190.25p.