A red-letter day for Royal Mail’s posties?

ON MONDAY, about 150,000 Royal Mail workers who were given shares in the company in 2013 will be able to sell them for the first time without having to pay income tax.

Since they own around 8pc of the company, that’s pretty big news. The question in many posties’ minds will be: ‘Should I stick, or should I sell?’

It’s been a tricky few months for the once state-owned service. A profit warning this month, when it said it wouldn’t be able to make the cost savings it hoped to, wiped 18pc off the share price in a day.

For a full-time Royal Mail worker, who was awarded 913 shares in 2013, this slashed their value by £782 in a matter of hours.

David Jones, chief market strategist at online trading platform Capital, says: ‘If you’re a postie, it’s a simple choice between buy or sell, although you may well regret you didn’t have the option to sell five months ago when the shares were worth 80pc more.’

Posties won’t be the only ones wondering what to do.

Jones, who himself owns shares in Royal Mail, says that unless shareholders urgently need the cash they might be well-advised to hold on to them for a while.

They pay a decent dividend – a worker with the full 913 shares will have received more than £850 since the float – and their price may yet recover after the shock of this month’s warning.

‘There are two risks here: the price continues to slide, and they decide to cut or even not pay the dividend in future,’ Jones says.

In the profit warning, the company did say it was committed to a ‘progressive’ dividend policy, implying it wouldn’t entirely axe the payouts.

Nick hyett, an equity analyst at hargreaves Lansdown, says that though there may be pressures on earnings and cash reserves making it harder to pay dividends, ‘the group is effectively debt-free and it’s still got a lot of property assets it could sell’.

The problem of Royal Mail’s sliding share price, however, could be trickier to resolve. The stock is worth 340.6p, just above the float price of 330p, meaning anyone who bought shares when it floated is still in the money, but way off the peak price of 631p in May this year.

There are a number of problems facing the British postal stalwart, hyett explains. First is the decline in letters. Though this was always expected, as communication moves online, it has come faster than Royal Mail expected.

Second is the parcels problem. In 2013 Royal Mail made a big deal out of their major role delivering UK parcels – the number of packages sent is expected to increase as online shopping takes off.

But Royal Mail wasn’t the only company to see the opportunity. A number of other players, including online giant Amazon, have muscled in, putting pressure on pricing and margins.

The company also needs to invest. ‘ Look at Amazon and Ocado during the Christmas rush,’ hyett says. ‘ They have hugely efficient warehouses. At Royal Mail, you have a massive pile of parcels with people employed on very short- term contracts to deal with that rush.’

Which links to the third issue with Royal Mail – that it will be hard to create the cost savings it planned when it still has a heavily unionised workforce.

Management had argued that because Royal Mail had spent so much time in public ownership, there was fat to be cut. But when they began to implement plans last Christmas, workers threatened to strike over worries about their jobs, pay and pensions.

Broker Berenberg says Royal Mail should trade at around 300p, as the profit squeeze may not be a short-term phenomenon.

But despite the obvious problems, there are reasons to stay in. The dividend is attractive, and it may yet be that Royal Mail retains its competitive advantage and becomes a winner for the future.

Posties, hyett adds, effectively benefited from a windfall. he says: ‘It’s reasonable to think you were given a delayed bonus several years ago, and think you want to realise the cash and buy a new car. equally, it would be reasonable to think this is a one-off bonus and you want to keep it invested.’