Member Info for Commonsense5

Very helpful thx

Thx Mr Oligarch, I hope you are right, when RMG was 140p the world was ending, RMG was without leadership and no one had a clue whether it would make a profit or a loss and back then it had real debt … - until everyone realised RMG was a strategic asset and we got guidance that actually if run well (and that includes having a good union relationship) it could be a seriously good business and seriously profitable. With one year of £700m ish operating profit net debt (ex leases) has moved to net cash in a major way. Importantly on the hand, private equity were only looking at one thing last year at 140p price time , which was saving their own portfolio businesses and for most refinancing almost every one. New basket case acquisitions for PE … were not on the menu !! IF IF you believe that RMG and GLS can even CONSiSTENTLY generate £700m + profits and even more (I think £1bn +) and assuming the cash is really there, then value will be what it will be BUT £10bn not crazy (the comparables are worth more) - IF you believe that PE or trade will buy it has massive upside. It is even more fragile a situation as if the biggest holder of 20% decides to sell his stake - then someone is 40% down the road to control (51%). If you don’t believe the long term profitability then don’t worry Re PE.

I checked this am - RMG has something like a 30% or 35% share of uk parcels. Amazon 15%. Other big names (FedEx, UPS and DPD) all less than 10%. (Top 5 are 75% of the UK market). If I were those business (ex Amazon) I would be after a stake or to buy RMG on the cheap. Look at BT (Deutsche Telekom has c 25% and now the new Frenchman Drahi has 20% on top !!). Don’t think that can’t happen more to RMG. I repeat my question for a multi £bn company - show me value especially in structural growth anywhere close to RMG. Sorry for waffling.

I understand this world of finance I know nothing about the Royal Mail really runs. I enjoy learning on this chat board about those who know about how the Royal Mail works. Let’s help each other.

Mr Oligarch, re little red boxes ; very funny indeed and very well put !! My understanding (although I should know more) is that RMG would like to reduce their ‘obligation’ to deliver everyday ? Via parliament as you say. I was staggered when I saw how much money that would save them (I think several hundred million) but I couldn’t exactly work out where that comes from. HOWEVER, in my mind part of the power of the offering of RMG is this platform; a huge pretty fixed cost base (ex Christmas) platform that needs to have as much put through it to generate bigger profits. Those extra parcels drop straight to the bottom line. However, this fixed daily or near daily platform I believe also offers the most environmentally beneficial service. We don’t need little white vans randomly running everywhere all day (I believe) with an associated MUCH bigger carbon footprint. (Note Yodel thIs week saying they are NOT investing in electric!) Outside of food arguably, everyone should have as close to one daily drop off to the doorstep as possible. Ultimately, as I have said before, retailers should be judged not just on their own carbon footprint BUT on the total including third party delivery costs (random white vans hairing around the country!). PLEASE PLEASE PLEASE mr RMG tell us and the market more about this in your results. I will try and dig out a brilliant FT article from a few months ago encapsulating it.

In the meantime… to revert to the little red boxes .. RMG is all about the daily platform and putting huge volume through it. If between April and end September the business achieved £400m of operating profit - again I urge the RMG board members to start talking about the inevitable £1bn of operating profit AT SOME POINT in the years to come. If they don’t … with a share price where it is - the other inevitable will happen - the business will be bought by Private Equity as night becomes day and all stakeholders will be worse off long term. Come on RMG !

The inevitable … £1bn min annual operating profit (£850m ish already), £1bn net cash (ex leases) (£800m ish by end March 22 I reckon anyway), mkt cap… £10bn +++ easily not £4.1bn !!! Lets NOT let PE buy this business !!

I would imagine directors would buy if they could - they may simply not be allowed to at the minute for many different potential reasons

Boo is a stock that can bounce quickly don’t forget …. 3rd April 2020 it hit 180p …. 19th June 2020 just over 2 months later it hit .. 413p !! The guys at T Rowe are v v smart. Near £200m ebitda forecast to Feb 2022 year end on a market cap of £2.5bn ish with a slug of cash in the bank and some of the best growth in the market. Not a once in a lifetime chance to buy a global leader but not many opportunities like this one. Good luck.

I suspect given the jungle drums are suggesting the e commerce companies are talking a good September and the likes of Deutsche Post and Yodel in their recent statements are talking a larger Q4 than last year that the hedge funds will start early closing their positions of 10m shares short - NOT EASY ! Especially given the underlying market has significantly improved. UBS to make themselves look good will move to a ‘hold’ at as low a price as possible (unless I have missed it they seem to have missed the bottom) and RMG will be min 450p in the run into the numbers NOV 18th and 500p after with a 10% bounce. THE CHEAPEST stock on the London market - even to get to normal valuations let alone a long term structural growth valuation !!

21 working days to go until the interim results to end September - £400m operating profit HW 1 - up their in black and white and hopefully retained guidance for more profit in H2 than H1 so £850m ish we hope for. Importantly net cash (ex leases) will be seen for the first time which I hope will be £750m + but let’s see. £600m last time, £100m of divi paid out (10p) and £400m operating profit on top. Decent capex but decent depreciation too - I haven’t done huge work on the latter point but in the past the two numbers are not hugely diffferent despite quite big capex at minute. (The acquisition Canada was after year end) - it is this build up of cash (combined with good profitability) that the market needs to see !! This net cash (ex leases) was not mentioned once in the UBS research note that did the damage.

I think with respect you are seriously under estimating our new ceo ! Ex ‘head of product’ Ocado at the very least means this guy has some thing about him relevant to a modern world. As important, I suspect it was his decision to invite the union boss to the analyst meeting which was recorded for everyone to see - where the union guy says ‘this is the first time they have ever been invited to a city day’. I suspect the first time for any company to have a union boss on a city call - genius who evers idea it was. With a workforce of 100k + if he gets the unions onside - supported by someone’s post last week Re unions - then the RMG becomes v v powerful culturally which should translate into bottom line profits ultimately.

FT article this am highlights Yodel saying two things - 1. Xmas trading has started early and consumers are reacting positively - good news. 2. They believe in the current year they will deliver 200m parcels v 190m last year = structural growth which if correct means RMG is totally the wrong price. Interestingly Yodel appear NOT to be embracing electric vehicles. In a previous post I talked about how important the carbon delivery footprint was going to become for the retailers in their decision of who they use to deliver their goods - I hope in the results RMG talk about their carbon footprint platform which I believe is one of the best - I think by quite some way. The shift to increased trains usage will really help this too !!

https://www.google.co.uk/amp/s/news.sky.com/story/amp/hut-group-founder-moulding-to-give-up-golden-share-in-bid-to-restore-city-confidence-12435184

Up they go

In what still remains an uncertain world and with a few stocks losing lots of value very quickly of late the defensive growth play of Rmg should be front and centre to investors. There have been some excellent posts this week around the unions and also the big construction updates with train access etc. I have learnt quite a lot and have been quite reassured - especially by the union comments about supporting ‘growth’. A MUCH better week this week Re share price and yes I agree 500p should be achieved post the results that are creeping closer. Well done everyone.

https://www.google.co.uk/amp/s/www.proactiveinvestors.co.uk/companies/amp/news/962947

Obviously quite a big market change last 24 hours to the positive - the Vix index (or fear index) has fallen significantly over the last week - hedgies will be closing now or shortly I have no doubt - UBS will move to a hold soon to prove themselves right - I expect the stock to sit at 450p very shortly in advance of the next statement after which we will get 500p + - I am pretty sure we are through the worst now as we challenged 400p. I will never talk about my activity in the market but I know that the market is very thin this am and there doesn’t appear to be any chunky sellers around. Good luck.

VERY helpful Scampthedog thx

Me Angersharkz

I can only offer a few thoughts

The big question that i asked on this platform a few days ago before is how able is RMG to pass on price increases - last year first class stamp inflation was something like 20% but I don’t know from Jan 1 22 how that might change

Most important are the contracts with corporate customers and how regular price changes can happen or whether cost inflation can be passed on. The view from over the pond UPS and FedEx is they appear to be able to pass on a decent amount with regularly changing price cards. I don’t know is the answer

Most importantly RMG made the last statement re profits of £400m H 1 and ‘a bigger number in H2’ (hence why many of us conclude £850m EBIT for full year’ when management had decent sight of the inflationary environment. The thematic hedge funds jumped on this negative sentiment band wagon at the time BUT companies generally do not make such statements on forward profitability unless they are a. Pretty sure and b. Allow some conservativism. Hence I would like to think they would still stand by that statement re loose guidance.

One good thing is IF rates go up shorter term to tackle inflation then those companies with a big cash pile benefit. Also the discount rate for valuing pension liabilities rises thus reducing the liability side of the pension fund calculation - probably increasing the pension fund surplus but it depends where the assets are as bond prices have obviously been falling.

The more worrying point is the availability of temp staff and drivers. I would like to think RMG fair better than most as some of those drivers are lifers in the pension fund who are less likely to chop and change employers because of their pension fund. However, I don’t know, temps obviously don’t get a pension.

On a worst case scenario even if profits were a few hundred million lower the business would still look extremely cheap and it could still easily afford an even bigger divi than promised !!

The ordering is by most recently updated with share price targets as of today on the system - UBS doesn’t show on this system which I find strange. I have double checked and not omitted anything - average price target 650p

Bernstein 650p
Goldman Sachs 661p
HSBC 730p
Berenberg 530p
HSBC 625p
JP Morgan 815p
Jeffries 550p
Barclays 550p
Credit Suisse 581p
Liberia 560p
Deutsche 763p
Socgen 675p

Berenberg and Liberum are ‘holds’ the rest are buys or outperform. To repeat no omissions.

At some point I would think UBS will at least drop their negative stance and the two hedgies that are short will start closing - 10m shares or so to buy !

Just keeping the uninformed remotely informed

The basics; £4bn market cap, yes in the current climate of driver shortages and fuel prices etc the list goes on of headwinds BUT look at fundamentals - net cash even after the acquisition of probably £800m (ex leases) by the year end March 22 with a current year operating profit of £850m giving 60p + of earnings per share. Only 20p of eps is scheduled to be paid out as dividend for the current year BUT RMG clearly has ‘excess capital’ especially given the multi billion £ pension surplus - there are quite a lot of companies that have excess capital that pay out 60-75% of their eps every year. At the top end that would create a real 10% yielding company at which point in theory the price would medium / long term near double. Whether buy backs (thus saving that 5% dividend for those who care to sell OR SHORT!) OR substantially increased dividends (while still investing in the business of course!) keep looking at fundamentals !!

Really hoping on November 19th results date the company talk about the excess capital and what they are going to do with it. Extra long term dividend flows OR specials OR BuY Backs for cancellation are all an emotive subject - a combination of the three I think is best given there is hopefully very limited stock available down here at these levels

Interesting

My suspicions are that the man with the Midas touch will go to 20% from 19% now - just another 10m shares !. I just checked Sainsbury disclosures and I think he remains at 10% being a £600m holding but not 100% where for obvious sector reasons he is decently in the money. If ever Sainsbury’s get interest like Morrison’s then that would be very good news for RMG, again for obvious reasons. He clearly likes fundamental deep value with semi strategic assets - very well done him and what a shame that the billionaires closer to home don’t follow his lead on the RMG opportunity. It turned out during covid that supermarkets were country strategic assets - RMG is even more so in my mind and thus deserves a premium rating, not a discount !!

Re GLS before - As I said before I think it would be a shame to spin off GLS however the subject is too complex for a short post - we trust in the board to be focussing on long term value for shareholders and all stakeholders factoring in motivation and performance management etc etc.

Replying to your request for a view on this acquisition …

There is one thing better than any dividends and share buy backs and that is earnings accretive good acquisitions (ie which as in this case immediately make the earnings per share go up - more earnings per share = more dividends over time) - the market loves GROWTH.

Well done management this looks a really good deal

RMG or rather GLS is using £210m of its net cash pile -(I would estimate the end March 22 year end net cash now only at £800m ish post this deal. The companies cash will be adding almost nothing to earnings. This £210m spend adds c£25m to RMG’s ebitda and is ‘immediately enhancing’. I would imagine there are two extra important points 1. GLS Canada will win more business as a result of having a full Canadian offer now and 2. There ‘may’ be some cost savings which will make it even more enhancing.

The best thing here right now however is that it forces analysts to assess the value ultimately of GLS which really should have a value closer to the global courier companies (10x versus our 3.5x) . It shows further that GLS has real ambition to grow its business further highlighting what many of us believe that RMG is a growth stock !! It gets the wider group closer to £1bn operating profit which would be an unbelievable milestone

BUT finally the really best thing is that it makes UBS consider whether this stock is still a SELL at 415p value !! … and maybe the hedgies wondering whether they should be closing their short !!!

For many reasons this is EXCELLENT news. !!