Member Info for Commonsense5

Just following up on earlier comment on Deutsche Post positive trading update today having done some investigating - so it is Eur67bn mkt cap with last net debt around Eur13bn so Eur80bn Enterprise Value very ish . They just announced 9 months Operating profit or EBIT of Eur5.7bn versus Eur 2.9bn for the 9 months last year (!) AND greater than the whole of last year which was Eur4.8bn for 12 months EBIT or operating profit THIS IS PRETTY GOOD ! - the Eur5.7bn year to date 9 months is all pre their Q4 last quarter to end December 21 to come where they think they will BEAT last year’s record they say !! They will give new guidance November 4th this year. It feels like Full year Operating profit will be Eur7bn + (pure arithmetic guess) therefore leaving the business on … just over 10x EBIT. See my previous Tesco comment where 10x for RMG would be 800p + STRUCTURAL GROWTH coming through - RMG on less than 4x EBIT - enough said (NB just double checked those reported numbers again pre posting because I actually didn’t believe them !)

Totally agree - UBS in particular looking purely at cost pressures which the company factored in when giving guidance and ignoring ways in which either prices might increase to offset - either the multiple afforded to this business in a structural growth sector appears wrong - I will work out the valuation of Deutsche Post but from memory it will be about 3x that of RMG !!! I will check

Hope everyone has Deutsche Post VERY strong trading statement out 2.15 uk time - upgrading this year AND next year - stock up decently - all due to STRUCTURAL GROWTH that everyone seems to have forgotten ! Worth Re reading the last RMG rns with managements confidence of structural growth - good news

Little anecdote of the day … if a hedge fund is short of a stock he has to pay the dividend (on top of his stock borrow costs), my suspicions are they will want to close their short pre dividends are paid !! Perhaps an extra incentive to increase the dividend a bit beyond the 20p of 65p of earnings which as you know I think is a bit mean given the net cash. Incidentally, if anyone saw that 3 minute video about the Royal Mail by Prince Charles during lockdown showing this UK strategic asset and its amazing workforce you could NEVER morally short this stock, but these are hedge funds.

Mr Angersharkz - manipulation as you describe is extremely difficult these days and the consequences are lost careers at least - if not prison - everything is taped and there are strict rules in all big houses. Those big banks have equally strict rules about who views their research and who research can go to. Usually none of it goes to retail investors. Many listed companies are often 90% institutional registers and 10% retail. I would hazard a guess that RMG has one of the widest held registers on the market with tens of thousands of private holders, possibly hundreds of thousands. RMG was excellent in H2 last year at giving guidance in the public statements but wasn’t able to give guidance until last week for the current year and even last week it wasn’t as clear as it might have been. Hence many investors are left totally in the dark. Your faith should be that share prices ALWAYS come right in the end. Short term however share prices are often wrong. I like those situations I have to say. However, the current situation is extreme. Time will tell. Don’t however worry too much about manipulation and none of the points I made earlier about how hedge funds behave is ‘manipulation’; it is simply exploiting a situation with very poor liquidity which they can do to force the price down. The two are quite different. What we need is the company to be telling the story to large non holder institutional funds, ideally big global ones who see that value for their investors. One big one of those new to the register will make all the difference but the next new buyer I would prefer to see as the company buying the shares back to be cancelled - to all our benefit !! If my assumptions are right about the huge amount of surplus capital (ALL AFTER VERY IMPORTANT LARGE CAPEX) I would like to see maybe £400m or £500m of buy back of stock at a value up to 500p say being around 10% of the company. Let’s see what happens mid November Re comments about a year end buy back if there shares remain down here if not earlier. The level of excess capital must be significant - way more than Tesco !!

May I suggest we all move on and keep with the only value add going forward on this very helpful platform. As I referred to earlier city changes to the stuff that retail investors can’t naturally see such as analyst views, price targets and forecasts are very helpful to share etc. At the same time operational type points from current / ex posties are really helpful. I have upped my repetition of comments around the absurd value partly since two hedgies annnounced their 10m share short who will be driving the price down at the expense of real shareholders if they can AND THEN hoping many posters just look at the historic share price chart and assume it will go lower without looking at fundamentals !! This pains me.

To that end I have two questions please - 1. when is the next price increase or not of a stamp set out for Jan22 ? I saw the last price increase which was set many months early for Jan 21 with a big price hike but does anyone know when the next price change is set ? I haven’t been able to see it ? 2. How often for parcels is GLS and Royal Mail able to raise prices - I saw a comment that FedEx and UPS had recently been lifting the delivery costs but how much roughly is annually contracted and how much is more flexible pricing ? Any experts around ?

Thx

J

Very well done with your three houses. If you don’t mind we will keep using this new found excellent platform to share thoughts and information about our stocks !

Normandy 53

I have 30 years city experience and my confidence in the ‘system’ is sadly pretty low from a retail investor perspective - I don’t think retail investors are any where looked after as they could be and peoples posts are mostly helpfull. I have learnt quite a lot. An example is many companies refer simply to ‘consensus forecasts ’ but don’t say even what consensus is. Many private holders have no clue what consensus means and certainly has no access to the secretive institutional analyst views which some of us get on tap for a mere £30k a year! Some companies pay for corporate research like Edison or Hardman whereby private investors can at least get some forecast information available to them on the companies website to guide non institutional investors. Several of my posts have been just correcting factual errors about the size of dividend for example where clearly some investors have no clue despite the fact the company has said it publicly. They need straight batted sensible help with some commentary.

Sadly I also know how hedgies work. At any point they will be leaning on the share price to keep nudging it lower and lower and scaremongering, they will also be writing posts like yours to try to keep the likes of me informing people. They are very clever and know every trick in the book. They will push the stock at illiquid moments as low as possible and then pounce to close their position. 10 million shares is a lot to buy back and were the company to announce something positive out of the blue the share price will rocket as they try and close. Rmg has many potential positive options up its sleeve.

Sorry but a week into my first ever postings I am not giving up !

Lots of us consider RMG to be the wrong price .. I just thought it would be interesting to look at the value of Tesco - a good consumer business and like RMG not without cost issues which announced good figures this morning stock up 5% - despite still having £2bn of real net debt (ex leases) they announced a £500m buy back today as they think the share are cheap …. On a £20bn mkt cap that is 2.5% of the company.

So Tesco is £22bn enterprise value - making operating profits of £2.5bn a year (exactly 3x RMG) and they will pay out 50% of their net cash flows as a dividend - RMG pays out less than a third 20p of 65p eps. However the enterprise value to operating profit of Tesco is just shy of 10x. Rmg is an enterprise value of say £3.4bn to be conservative (market cap less real net cash) on operating profits current year of £850m min as the company have indicated - so 4x. If RMG was ever on a Tesco rating then the mkt cap would be £7.8bn ish or 780p a share !! This is why several top city analysts have it on a price target of 700p to 800p. Tesco still has a decent pension deficit whilst RMG has a massive surplus. I am obviously aware that Tesco and RMG are VERY different businesses BUT I maintain that the 30% ish market share of RMG with its very solid platform & I think TOP management (BUT time will tell on that ) that RMG should command a premium rating as a busisness. Short term until the figures sit on the 5% yield backed by huge cash pile, expect more to come Re specials OR buy backs OR a mix and wait for RMG to go well beyond the recent high of 600p. As I keep saying show me any decent ftse stock (arguably house builders) that comes close to this value

All the best

Not the biggest of bounces but a bounce nonetheless !!

The target price of UBS of 440p on their sell note still feels a long way away - it we at least sat at 440p for a bit pre the next rally I think we would all be pleased ! Relieved indeed !!

Mr oligarch, I hear you on the spin off of GLS but, if let us say in normal times someone offered you £5bn for example for GLS then you would be left with Royal Mail making say £300-400m a year and net real cash post disposal of £6bn . The value analysts put on Royal Mail doesn’t change but the business has huge cash to return - in fact £5bn in the example above which would mean shareholders get 500p a share returned to them and a business worth £3bn say or 300p ongoing whilst still leaving £1bn cash. Either way please trust me a strategic even partial disposal of GLS could be extremely good for shareholders of RMG. If RMG kept a stake they could also benefit from a GLS management team which can properly use newly listed share options to incentivise staff. Typically it is hard to incentivise any employees with options and saye if the share price is falling !

Re buy backs, the only time buys backs are relevant is if there is true ‘surplus cash’ (which we have) and a low share price. For every share issued Rmg pays 20p or a 5% dividend cost. Buy those shares back and you save 5%. That surplus cash earns the company … nothing or 1% tops. Shrink the number of shares and and earnings per share rises. Broadly a buy back of 10% of the company and the eps rises 10%, which is a bid thing and the value goes up.

Tried to answer your points respectively, forgive me if it didn’t read that way.

Just remember the fundamentals … sorry but worth repeating ! £4.1bn mkt cap, approaching £1bn net cash (ex leases) SO real enterprise value of £3.1bn by year end March 22, on a business that this year will make £850m operating profit which is broadly pre tax profit. We only get 20p a share or £200m as dividends which at the current price is 5% yield - again show me a higher quality dividend in the market with 60p + of earnings so 3x covered and 25% of the market cap on cash (to repeat expected net cash at year end Mar 22). We should if not already quickly be into excess capital which should be returned to shareholders somehow. Extraordinary. Even if the company only made £500m operating profit a year it would still be very cheap - The global competitors trade historically on 15x earnings post tax - we are on nearer 5x ! GLS would very comfortably achieve a 10x earnings value if spun off - if I was running GLS I would be chomping to unlock that value which is unquestionably dragged down by RMG - easily done by spinning off as a separate German or Dutch IPO with RMG maintaining a 30% holding. See the report and accounts and how totally separate these businesses appear. GLS rebranded only days ago … Either way there are many strategic ways RMG can and will increasingly need to deliver value. The easiest right now is a buy back of shares - cancel those shares - save the company the cost of the dividend AND importantly increase the value of the shares.

Dalius I am 99% sure the divi is 20p for the current year post 10p last year paid 1/3rd interim 2/3rds final - it was outlined in the July results - so actually a whisker from 5%. They also said ‘excess capital would be returned’ in the analyst meeeting / video / script that I am equally sure you can still read on the website

Those increased shorts are a huge amount of stock to buy back ! With hoped for increased dividends beyond guidance (20p of 60p eps is a bit mean, special divies of excess capital, potential spin off of GLS (very interesting they appeared to re brand today - see LinkedIn - ahead of spin off?!) potential buy backs and dare I say trading upgrades if Xmas goes well - hedgies buying that much stock back could be a challenge. There is a strong argument that this stock which is valued in a derisory way should be a premium stock on the structural growth play that it is. This year v last year is no comparison. View the shorting as a positive.

Mr UBS - there is no need for you to justify your note to this group, it is an excellent note, I learnt a few things and most importantly you have been proven right! I am just surprised that in the 20 pages not once do you mention the fact RMG has real net cash ex leases of probably £800m as we speak (given £600m last reported less divi + H1 cash flow) instead you refer only to £450m ish net debt inc lease commitments which for those who don’t know is a non cash figure of approx 8x annual lease costs. Versus the market cap that is a very big number. I hope however you are only right short term but time will tell - that is what makes a market! My comments are only with genuine respect towards UBS.

You have to look at the two hedge funds shorting as a positive as they will have a lot of stock to buy back soon - at these levels I don’t think it will be long before private equity buyers for RMG start appearing - the cash flows are extraordinary in that - at £4.1bn mkt cap now, by the end of March next year broad real net cash is forecast to be £850m (ex leases) a figure that i am amazed more investors don’t seem to get - it could easily be higher but this compounds the value of the near 5% yield - anyway a respectable blue chip private equity buyer of RMG who teams up with VESA gets near £1bn net cash back on his investment with operating profit of £850m he could comfortably put in 3x debt leaving only a cheque of net £2bn say at £5.50 a share to get a near 50% annual return. All at a time when digitalisation change is in full flow and many positive investments have been made. My preference would NOT be for a bid but rather an uplift in dividend which the company can easily afford paying this year only 20p of 60p in earnings coupled with ideally a buy back of several hundred million via a tender offer. Either way the last rns is worth Re reading as contrary to what the share price would tell you, RMG appears to be going well and as they say, importantly, ‘maintaining market share’ with profits in H2 forecast to be greater than H1’s £400m. Let’s hope for a better week this week.

Remember this fellow shareholders (I wish the company would get engaged with us more !!) if you are reading …

1. Longevity - founded by King Henry VIII …
2. Massive deep value - mkt cap £4.2bn, net cash nearing £1bn excluding leases), operating profit near £1bn - bonkers - someone show me more FTSE value AND structural growth
3. 20p a share divi while we wait, probably next year 25p then 30p
4. Excess capital probably to be returned (this has not been great for Persimmon etc but it should be good for RMG as we have a better business model / platform)
5. Pension fund £3bn + surplus - the funds should buy 50% of RMG and full align itself
6. I would like to think a workforce that really cares
7. A stock Warren Buffet should own … I will be trying to broke the story to him next few days if I can !!
8. The issues highlighted by UBS are all short term

Crazy value - just hold the faith !!

Beat wishes

J

UBS note analysis - awaiting response to an interesting question ….

So, I have been through the UBS note finally

The crux of the 440p valuation needs challenging … Page 11 of the valuation section of the note ….

They say RMG is worth an Enterprise value of £4.88bn - fine !!! I agree with that as a minimum

To reach their Equity value THEY TAKE OFF the net debt to end March 21 = £475m - to predict an equity value of £4.4bn = 440p. HOWEVER, I would suggest there is NOT really £475m of net debt but rather the NET CASH at 31st March 2021 is £600m - which was declared at the results - the difference is capitalised leases = roughly normally a notional number of 8x lease costs !!! If you take £600m net cash - which in my view is the real number is £5.48bn equity value - This equals to 548p share price NOT 440p (assuming 1bn shares in issue) Mr UBS I think your analysis is wrong !!!

This debate of net debt v net cash is VERY important. In my view one should focus on the real net cash excluding capitalised leases = £600m last results but in my view net cash is going to £1bn by March 2022 the next year end. This latter number would make the market cap equivalent on the numbers above of £5.88bn or 588p.

I will write direct to Mr UBS to discuss but this is a great example of whether capitalised leases really affects value, OR NOT !! With around £1bn net cash at next year end the return of excess capital is possible which I expect

In case this helps the private investors … you could see this if you paid about £30k a year for a Bloomberg screen !!

UBS appears a new analyst bank to the rosta of city analysts .. my suspicions are that they are short term picking up on the fuel shortage which will obviously have a small negative effect on RMG but hopefully short term

Live on bberg at the minute are the following bank recommendations ; averaging 650p share price target but this excludes UBS out this am - ranked in order of latest updates

Bernstein 650p
Peel Hunt 625p
JP Morgan 815p
Jeffries 550p
Berenberg 530p
Barclays 550p
Goldman 681p
Credit Suisse 581p
Liberum 560p
Deutsche 760p
Hsbc 720p
Soc gen 675p

I have not played around with these - these are as the latest share price targets as they appear on bberg this am
- no omissions

Simply FYI

To answer the question - UBS came out with a sell and 440p target share price - given only 10% off last nights close of 480p I am surprised a sell but hey ho. I would love to know their thesis. My thesis is £4.5bn market cap, £600m net cash at year end moving towards £1bn net cash by March 22 (leases excluded), near £1bn operating profit, 20p divi basis = 4.5% yield while we wait, it is now by a greater stretch (!) cheapest stock in the market. Average analyst price target remains at 650p. UBS are no fools but I don’t know their logic. I have been buying a lot this am. A patient game if you believe in structural parcel growth.