Royal Mail will ‘struggle to afford’ urgent improvements

However, it comments that the new company would be a ripe candidate for a take-over.

Industry expert Roger Sumner-Rivers, founder of international couriers ParcelHero, says: “This announcement looks to be good news for customers, who will benefit from the more commercial and competitive approach that Royal Mail will be able to make to the letters and parcels market. However, I question whether the fully privatised Royal Mail will be able to afford the urgent investment it needs; or whether it will ultimately need to find a buyer to secure its long term future.”

Roger warns that potential investors might not find Royal Mail shares to be as good a long-term investment as its current share price would seem.

Royal Mail recently announced plans to automate its 20 busiest sorting centres. 

Says Roger: “ParcelHero have been warning for some time that Royal Mail faces some tough challenges, and these have not gone away. Royal Mail needs modernising urgently, its infrastructure is creaking; and the newly privatised company might find difficulty funding the urgent improvements needed. It has just reported a 4% fall in letter volumes, and – as the recent demise of Whistl’s door-to-door letters service shows – it’s extremely hard to make money in the postal market today; due to the ever growing rise in emails, e-cards, etc. It’s hard to make money in a business which has to deliver a letter to the Highlands and Islands for the price of a stamp.”

Roger says: ‘Perhaps even more significantly Royal Mail’s parcel business, Parcelforce, is not growing in line with the market, because of a lack of innovation and competitiveness. Its parcels revenue growth of just 1% is very disappointing in a fast growing market, and until Royal Mail becomes more responsive to customer needs we fear they will continue to be the laggard in a sector that grew by 9.5% last year.”