At the peak of the pandemic, Royal Mail delivered record parcel numbers but fewer letters. This goes to show how the company adapts its business to suit the needs of the moment. The company has been in business for many centuries, which shows that they must be doing something right all those years, and for that reason, we have created this post as a guide for investors who intend to buy Royal Mail stock.
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Learn How to Buy Royal Mail Stocks in 3 Easy Steps
Find a broker
Choosing a broker can be as important as choosing a stock, so you need to perform your due diligence. Not all brokers allow you to trade Royal Mail stocks because they don't have access to the London Stock Exchange (LSE) where the stock is traded. So, the first step is to find a broker with access to the LSE that meets your unique trading needs and open a trading account.
Analyze the Royal Mail stock price chart
The next step is to analyze the price chart of Royal Mail stock to know when it is right to take a position in the stock. There are many technical indicators you can use to analyze the trend and support and resistance levels. You may also need to analyze the daily trading volumes.
After opening a trading account and analyzing the company’s price chart, you can start placing your trade orders. You can day trade, swing trade, or buy-and-hold the stock. Just make sure you employ a trading style that suits your personality, and be sure to have a plan.
Royal Mail company overview
Royal Mail plc is a British multinational postal and delivery service company that was established in 1516 as part of the English government department. It offers letter and parcel delivery services under the Royal Mail and Parcelforce Worldwide brands.
It is famed for the distinctive red pillar boxes, first introduced in the United Kingdom in 1852. Red Pillar boxes bore the initials of the reigning monarch when they were installed. Apart from its traditional British base, Royal Mail operates ground-based parcel delivery networks in 36 European countries, as well as the United States and Canada.
Royal Mail operates through five segments, namely: UK Parcels, International, Letters (UKPIL), General Logistics Systems (GLS), and Group. The UKPIL segment focuses on UK and international parcels and letter delivery businesses under the Royal Mail brand. The GLS segment operates a ground-based parcel delivery network covering parcel and letter delivery in Europe, Western US, and Canada under the Parcelforce Worldwide brand.
For much of its history, Royal Mail was a public service company established as a government department. However, following the Postal Services Act of 2011, the company went public and floated the majority of its shares on the London Stock Exchange in 2013. The UK government initially retained a 30% stake in Royal Mail but sold its remaining shares two years later, bringing an end to five centuries of state ownership. Royal Mail has a market capitalization of $4.6bn and is a constituent of the FTSE 250 Index.
Royal Mail business model and revenue streams
Historically, the bulk of Royal Mail's revenue has come from the delivery of letters. This has made the company struggle recently, with the shift from letters to emails as the preferred mode of communication among people and businesses.
However, in the 2020 fiscal year, revenue accrued from delivery from parcels overtook that from letter delivery due to the surge in online shopping during Covid-19 restrictions. Parcel deliveries accounted for 60% of the company's revenue in the first half of the 2020 financial year, a 13% annualized increase.
However, with the pandemic easing off and countries embarking on a massive vaccination campaign, parcel delivery rates may drop. Still, the company has scaled up its delivery services to exploit the increased revenue as more consumers turn to online shopping.
History of Royal Mail
The Royal Mail can trace its history back to 1516 when Henry VIII established a "Master of the Posts", which, in 1710, was renamed "Postmaster General.” The service was used to maintain communication between London and Edinburgh so that the king can retain control over the Scottish Privy Council. Later, the Royal Mail service was made available to the public by Charles I on 31 July 1635.
Fearing that foreign agents and spies were using the postal service to pass information back to their countries, the Post Office was put under direct government control. This implied that the government was sorting through letters that were passing through the postal service.
In 1892, the Royal Mail opened a national telephone service. In 1919, the first international airmail service was developed by Royal Engineers in the postal service in partnership with the Royal Air Force.
The Royal Mail remained mainly under government control until after a change of government in 1997. The ruling Labour administration wanted to keep the Post Office state-owned but with more commercial freedom. This led to the promulgation of the Postal Services Act 2000, which made the Post Office a public limited company and floated its shares on the London Stock Exchange.
The company was renamed Consignia plc in 2001 to appeal to the public and emphasize other aspects of the company other than delivery. However, the decision was later reversed due to its unpopularity among the Communication Workers Union (CWU).
Moreover, in 1999, Royal Mail launched ViaCode Limited, an e-commerce venture aimed at providing encrypted online communications services. After three years, the project was closed down due to mounting losses. On 1 January 2006, the Royal Mail lost its 350-year monopoly of the British postal market as the government opened it up to competition, and in 2007, the company ended its Sunday collections from pillar boxes. I
In 2010, the government sought to privatize the company following the EU Directive 2008/6/EC, which called for the postal sector to be fully open to competition. So, in July 2013, Royal Mail went public on the London Stock Exchange, selling 52.2% of its stake to investors, with 10% given to employees for free. Share prices rose by 38% on the first day of trading. Due to the high demand, an additional 7.8% of the company’s outstanding shares were sold via an over-allotment arrangement later in the year, leaving the government with a 30% stake in Royal Mail.
The move increased investor appetite for the stock as the stock continued to rise, rallying by 87% within six months. This led to questions on the valuation of the stock, with a House of Commons inquiry and a subsequent vote for Royal Mail's renationalization in 2014.
In 2015, the British government sold its remaining 30% stake to the public in two tranches. A 15% stake was sold to investors on 11 June 2015, raising £750m. The second tranche was sold on 12 October 2015 when a 13% stake was sold to investors for £591m, while the remaining 2% of the outstanding shares were given to employees.
Brokers that offer Royal Mail shares
There are a lot of brokers with access to the LSE that offer the shares of Royal Mail. However, to save you the stress, we have compiled a list of the best brokers that offer Royal Mail shares in the table below.
Should I invest in Royal Mail stock?
The rise in online shopping implies that delivery companies would play a new part in the fast-evolving digital economy. So, there would be an increased need for parcel delivery. With Royal Mail reinventing its core business operations and changing from letter delivery to parcel delivery, the company would remain relevant. Thus, the stock is worth investing in.
Royal Mail stock investment potential
Shares of Royal Mail were among the pandemic winners due to the surge in parcel deliveries. However, investors are mulling how the company’s performance would be as the economy continues to reopen. Such anxiety is heightened by the fact that Royal Mail has heavily relied on its shrinking letter business over the years. The company also faces internal challenges from its unionized workforce, which has resisted modernization that would allow the firm to adapt to current times.
However, Royal Mail seems to have navigated these murky waters. The company is increasing infrastructural investment in its parcel delivery segment, which would make it deliver more parcels in a shorter time. Also, the company reached a landmark agreement with staff and union members on the company’s strategy, future direction, operational change, pay, and job security, thereby settling a long dispute between the parties.
What kinds of investors should include Royal Mail stock in their portfolios?
Shares of Royal Mail would appeal to long-term investors. The company is undergoing both digital and business model transformation. The shift in emphasis on online services and parcel delivery implies that it would take some time for the company operations to align. However, positive signs are already showing in the balance sheet, with revenues from parcel delivery surpassing that of letter delivery in 2020 for the first time.
How much should I invest in Royal Mail?
How much one can invest depends on the amount of cash available, risk appetite, trading style, and other important considerations. However, the general rule of thumb is not to invest more than 2% of your portfolio (or an amount you cannot afford to lose) in a single stock.
How to buy shares in Royal Mail stock?
These are the steps to follow if you want to buy Royal Mail stock:
Open a brokerage account: You need a brokerage account to be able to trade the shares of Royal Mail. Choose a broker that suits your peculiar needs. When you have chosen one, open a trading account and fund it.
Find out the right time to buy Royal Mail shares: Using your specific trading strategy and plan, determine when it is right to take a position in the stock. You may have to analyze the price chart and the daily trading volume.
Start buying Royal Mail stock: When the right opportunity comes to buy the stock, you can place your buy orders. If you are for short-term trading, it is necessary that you regularly check your position and possibly adjust given prevailing market conditions. If you do not have sufficient time to monitor your stock, setting take-profit and stop-loss levels would prevent you from incurring losses on your trading account.
Buy Royal Mail shares using a broker
You can buy Royal Mail shares from various brokers, but the process is somewhat the same. Log into your trading account and search for Royal Mail using the appropriate ticker (RMG.L). When the stock pops up, click on the stock and place your trade orders. Once your trade has been registered, you would see the appropriate amount of units you purchase displayed on your screen dashboard.
Buy Royal Mail shares with a direct stock purchase plan (DSPP)
Direct Stock Purchase Plans (DSPP) are a way for individuals to buy stocks directly from a company rather than through a brokerage. However, Royal Mail does not have that plan in place.
Frequently Asked Questions
Due to the surge in online shopping, which drives revenues for delivery companies, Royal Mail is a good stock to buy in 2021.
Yes, the company is modernizing its business to stay profitable.
Yes, if you trade the right way.
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