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Royal Mail Group (LSE: RMG) shares have had a very volatile few years, with the impressive Covid recovery soon to go south again. Today, Royal Mail’s share price is down a shade less than 60% over the past 12 months.
I researched the company a few times, but didn’t feel confident enough to buy. So what now?
In the year The current year ending March 2023 seems to be tough for earnings. The first quarter brought in an 11.5% drop in revenue and an adjusted operating loss of £92m. That’s almost £1m a day lost.
Analysts expect next year to be much better, with Royal Mail’s price-to-earnings (P/E) ratio hitting just over five.
We should treat broker forecasts with caution. But when I see something that looks very cheap compared to FTSE 100Long-term average P/E of around 14 to 15, I note.
This year’s forecasted profit margin is 10%. I don’t put much faith in this relatively early stage. But it gives me extra motivation.
However, the financial situation is likely to keep investors away from Royal Mail shares. A few days ago, the company gave us an update on the biggest concern of the moment – industrial relations.
The Communications Workers Union (CWU) has already staged three nationwide postal strikes. And two more are coming on September 30th and October 1st.
The Royal Mail said last week:After five months of negotiations, including three dispute resolution proceedings, no agreement was reached with the Communications Workers Union (CWU).He said.
He added:The CWU has blocked any meaningful discussion of the company’s proposed change agenda, and has not offered options to help fund further wage increases.“
Due to the lack of progress, Royal Mail is taking two new measures. First, it suggests taking the dispute to the Advisory, Conciliation and Arbitration Service (Acas) for resolution.
Royal Mail also “It intends to review or provide notice of the many historic agreements and policies currently being used by the CWU to impede change and move to a more modern industrial relations framework that enables businesses to compete more efficiently and effectively.He said.
In short, Royal Mail is increasingly competitive. And this competition comes from efficient companies with more cost-effective work practices.
To buy or not to buy?
I am left torn. There is clearly a strong long-term business here, and Royal Mail has shown remarkable strength in the face of the competition. I think the market share is going well.
But I fear that unless it changes and starts working in more flexible, efficiency-oriented, ways, it will lose its benefits.
Is the current low stock price valuation sufficiently compensating for the risk posed by the company’s industrial relations nightmare? I just don’t know, and that’s why I’d stay again. I still feel like I might be missing a good long-term buy, mind.