The shares of the UK-based postal delivery company Royal Mail (GB:RMG) have been struggling in the last year, thanks to a combination of falling revenues and threats of strikes.
The shares are down by 40% in the last year, after being a ‘pandemic winner’ thanks to soaring demand for home delivery.
But in the wake of Covid recovery, shares have slumped.
Why is the Royal Mail share price dropping?
Falling demand for delivery services has led to poor results this year.
The company reported its first-quarter results last month. Revenue was down by 11.5% year-over-year. It also posted an operating loss of £92 million as a result of a fixed cost structure hit by lower revenues.
The company is aiming to achieve better flexibility to manage resources and achieve cost efficiencies.
GLS, a subsidiary of Royal Mail, performed better and posted an operating profit of £94 million, driven by improved freight revenues.
Upcoming strikes
The communication workers union (CWU) has called for its members’ to strike in the last week of August and some also in September 2022.
The union is demanding better pay and improved working conditions. Even though the company is offering a big pay hike, the union wants it to be on par with inflation rates. The overall union demands will hit the company with £1 billion in costs.
Royal Mail, which is already suffering a loss of £1 million every day, is considering some big strategic changes, which include splitting the business.
What is the forecast for Royal Mail shares?
According to TipRanks’ analyst rating consensus, Royal Mail’s stock has a Moderate Buy rating. It includes Six Buys, one Hold, and one Sell recommendation.
Royal Mail’s target price is 415.94p, which represents a 55.2% change in the price from the current level. The price target has a low and a high forecast of 254.5p and 604p, respectively.
Conclusion
The strikes are going to hurt the daily operations and will further impact the company’s volumes and revenues.
A dividend yield of 8.38% as compared to the industry average of 1.64% is attractive – but will the company be able to sustain it?
