Royal Mail will announce the first half results on Thursday and the expectations are mostly downbeat.
The declining letter volumes is a major concern and will certainly be a primary issue in the future. Cutting 5500 job led to £40 million savings over the last 12 months, nevertheless one shot cost cutting may not be enough to encourage investors as Ofcom said it will re-examine and may roll back some of commercial flexibility given to Royal Mail in 2012, as fixing higher prices, which may directly impact earnings and push back investors.
The company is expected to announce a lower EPS £0.049 versus £0.125 for the same period last year. Analysts revised down their expectations on Royal Mail sales by 0.34% over the past four weeks. Sales may have fallen to £4.426bn from £4.525bn in the first half of last year.
RM stock price is off by 18% since its May high of £532.50p and presently seeing support at£435/460p, which is a good head and shoulders since mid-March. The technical bias is on the downside below £477.50p (Fib 38.2% retracement on the year) and suggests a deeper sell-off to £422.50p before £400p and £360p in the extension of an ABCD pattern, which could be a good entry level technically speaking.
Surpassing £460p, a recovery to $477.50 is envisaged. The stock price will be considered in bullish consolidation phase only above £477.50p.
The analyst coverage is balanced. Buy/Hold/Sell: 7/6/5 with 12-month average target price at £474.29.