RMG LN
Royal Mail PLC
Consumer, Industrial/Transportation
12/27/2016
Presented
| Date | 12/21/2016 |
| Price | £4.50 |
| Market Cap | $6.96B |
| Ent Value | $8.77B |
| P/E Ratio | 21.14x |
| Book Value | £5.21 |
| Div Yield | 0.03% |
| Shares O/S | 1,005.53M |
| Ave Daily Vol | 3,815,119 |
| Short Int | N/A |
Current
| Price | £3.43 |
| Market Cap | $5.04B |
| Royal Mail Plc is a provider of postal and delivery services in the UK, with significant operations in continental Europe. The company operates through its business segments: UKPIL (UK Parcels, International and Letters), General Logistics Systems GLS and Other. The UKPIL segment collects and delivers parcels and letters predominantly through its networks: the Royal Mail Core Network and Parcelforce Worldwide. It provides collection and delivery services under the Royal Mail and Parcelforce Worldwide brands. GLS comprises the group's European parcel business and is focused on the deferred parcels segment. GLS operates in 22 European countries and nation states through wholly-owned members of the GLS Group and franchisees, and covers an additional 15 European countries and nation states through network and service partners of the GLS Group, which include Parcelforce Worldwide in the UK. Royal Mail was founded on September 6, 2013 and is headquartered in London, the United Kingdom. |
Publicly traded companies mentioned herein: Amazon.com Inc (AMZN, Deutsche Post AG (DPW GR), Royal Mail PLC (RMG LN), UK Mail Group PLC (UKM LN)
Highlights
The presenter is short shares of Royal Mail (RMG), which was spun-off from the UK government in 2012. Recent headlines about cuts to the Post Office workers’ pension and the risk of a strike have highlighted an issue and risk the company must deal with, but the real story centers around fundamental deterioration of RMG’s business and cash flows over the next year, and an inability to deliver on the e-commerce and parcel growth story that is supposed to offset small declines in the letters business. He sees the departure of RMG’s CFO, Matthew Lester (announced 12/20/2016) and Amazon’s efforts in the UK as important issues, and said there is potential for 30-50% downside in the stock over the next 12-24 months based on competition, margin pressure, and other expenses that should result in EBITDA coming in 15% below Street forecasts for 2018 (£700mm vs ~£820mm) and sub-£200mm FCF generation. The magnitude of decline beyond 30% will depend on the outcome of the pension negotiations and impact on RMG’s liquidity, but in the meantime there will be “a lot of noise” that may overshadow the major headwinds facing the business.
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