Royal Mail shares have fallen to their lowest level since the company’s controversial privatisation, as the group warned that aggressive competition would result in lower-than-expected parcel revenue this year.
The stock, which has been steadily declining since a peak of more than £6 in February, dropped by as much as 4% to 445.1p in early trading after the group’s first-quarter trading update.
But the company stopped short of issuing a profits warning after a focus on cost and better revenue performance in its addressed letters division mitigated the fall.
It instead outlined a range of new measures designed to ensure it can pick up as much parcel business as possible during the crucial Christmas deliveries period.
A trading update for the three months to June 29 revealed Royal Mail had been hit by changes to Amazon deliveries and the strong pound.
But Royal Mail said it was fighting back, with measures including a Sunday delivery service for online shoppers and the opening of its network for longer at weekends to receive goods from retailers.
Shares closed the day down 3%, or 16p, at 450p, with analysts warning over the challenge ahead.
Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: “It appears that the honeymoon period is over for Royal Mail as the realities of its competitive environment intensify.”
Cantor Fitzgerald analyst Robin Byde said: “In our view, the company faces a considerable volume and pricing challenge in parcels in the next 18 months. We maintain our sell recommendation.”
The stock price has not fallen so low since Royal Mail was floated in October, when shares were sold at 330p but immediately surged to 450p as trading began. The jump prompted criticism of the sell-off, but was dismissed as “froth and speculation” by Business Secretary Vince Cable.
Revenues for the overall group climbed 2% during three-month period, with a 6% rise for its European parcels business GLS.
UK parcels revenue fell 1% though volumes were up 1%. Letter volumes, which are expected to see a steady decline, fell by a lower-than-expected 3% while revenues rose 3%.
CEO Moya Greene said the low single-digit revenue growth was in line with strategy.
“Given the increasing challenges we are facing in the UK parcels market, our parcels revenue for the year is likely to be lower than we had anticipated,” she said.
“However, through cost control measures, and with continued good letters performance, we expect to be able to offset the impact on profit such that our overall performance would remain in line with our expectations for the full year.
“Our parcels revenue will be dependent on our performance in the second half, which includes the Christmas trading period, and on no further weakening in our addressable UK parcels market.”
Royal Mail expects to see letter volumes fall 4%-6% per year and is focusing on the growing parcels market, where it acknowledges competition is intense.
In the latest quarter, rivals had been “aggressively reducing prices”.
It said weaker-than-expected export parcel volumes the result of this competition as well as stronger sterling reduced UK parcels revenue growth for the period by 1.5%, “which is not expected to reverse in the full year”.
Elsewhere, changes to Amazon’s minimum order level for free delivery and expansion of its own delivery network reduced volumes.
The figures come a week after it emerged that Royal Mail’s GLS business was being investigated by competition authorities in France, with analysts estimating it could face a fine of up to £160 million.