How to Buy Royal Mail Stock in 2022
Royal Mail plc operates ground-based parcel delivery networks in Britain and 36 European countries plus the United States and Canada. It offers letter and parcel delivery services under the Royal Mail and Parcelforce Worldwide brands.
At the peak of the coronavirus pandemic in 2020, Royal Mail delivered record parcel numbers but fewer letters, possibly indicating the company’s ability to adapt its business to suit the needs of the moment. This is our guide for prospective investors who might wish to buy Royal Mail stock.
Learn How to Buy Royal Mail Stocks in 3 Easy Steps
Find a Broker
First, you need to open an account with an online stockbroker, through which you can buy Royal Mail shares. Not all stockbrokers allow you to trade Royal Mail stock because they don't have access to the London Stock Exchange (LSE) where the stock is traded.
Analyze the Royal Mail Stock Price Chart
You have already decided to buy Royal Mail shares, so no fundamental analysis is necessary; the next step is to analyse the price chart that helps you determine the right time to buy the stock. Many technical indicators help you analyse the trend and any support/resistance levels, and you may also need to analyse the daily trading volumes.
When your technical analysis tells you it’s a good time to enter the market, you can place your buy order. Use a market order (which buys the stock at the market price) or a limit order (which buys at your specified price when the stock falls to that level). Be sure to have a trading plan before making a trade.
Royal Mail Company Overview
Royal Mail plc is a British multinational postal and delivery service company that was established in 1516 as an English government department but later made a public company. The company is famed for the distinctive red pillar boxes, first introduced in the United Kingdom in 1852, which traditionally bore the initials of the reigning monarch when they were installed.
In addition to its British base, Royal Mail operates ground-based parcel delivery networks in 36 European countries as well as the United States and Canada.
At the beginning of June 2021, Royal Mail had a market capitalization of $5.99bn and is a constituent of the FTSE 250 Index.
Royal Mail’s segments include UK Parcels, International & Letters (UKPIL), General Logistics Systems (GLS), and Other. 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 deliveries in Europe, Western US, and Canada under the Parcelforce Worldwide brand.
Royal Mail Business Model and Revenue Streams
Historically, the bulk of Royal Mail's revenue has come from the delivery of letters, which caused the company to struggle as customers shifted from letters to emails as the preferred mode of communication. While competitor couriers could concentrate on their more profitable parcel businesses, Royal Mail was constrained by its universal service obligation to deliver letters to all UK households.
In the 2020 fiscal year, revenue from parcel deliveries overtook revenue from letter deliveries 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.
Royal Mail shares have responded to its increased prospects with parcels, but caution is required because parcel delivery rates could drop as the pandemic eases off and countries embark on massive vaccination campaigns.
History of Royal Mail
The Royal Mail can trace its history to 1516 when Henry VIII established a "Master of the Posts", which was renamed "Postmaster General” in 1710. The service was used to maintain communication between London and Edinburgh so that the king could keep control of the Scottish Privy Council. On July 31, 1635, Charles I made the Royal Mail service available to the public, but the service was under direct government control to prevent the actions of spies and foreign agents.
In 1892, the Royal Mail opened a national telephone service. The first international airmail service was developed in 1919 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 company state-owned but with more commercial freedom. This led to the promulgation of the Postal Services Act 2000, which made Royal Mail 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 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 January 1, 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.
In 2010, the UK 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. In accordance with the Postal Services Act of 2011, Royal Mail went public on the London Stock Exchange in July 2013, selling 52.2% of its stake to investors, with 10% given to employees for free. The share price 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 it rallied by 87% within six months. This led to questions about the stock’s valuation, which culminated in 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.
The company has been around for many centuries in various guises. Despite its tortuous history, it must be doing something right to stay in business.
Brokers that Offer Royal Mail Shares
Any stockbroker with direct or indirect (via a partner stockbroker) access to the London Stock Exchange should offer Royal Mail shares for trading. Based on commissions, user features of their trading platforms, and other services, we have shortlisted the best stockbrokers that offer Royal Mail shares.
Should I Invest in Royal Mail Stock?
The rise in online shopping creates a huge business for delivery companies due to the increased need for parcel delivery. With Royal Mail reinventing its core business operations and transitioning from letter delivery to parcel delivery, the company is positioned to benefit from the fast-evolving digital economy. So, the stock could be worth investing in.
Royal Mail Stock Investment Potential
While Royal Mail shares were among the top winners during the coronavirus pandemic, due to the surge in its parcel deliveries, investors should be concerned about how the company will perform as the economy continues to reopen. Royal Mail has relied heavily on its shrinking letter business over the years and also faces internal challenges from its unionized workforce, which has resisted modernization that would allow the firm to adapt to current times.
However, the company is increasing investment in its parcel delivery segment, which should allow it to deliver more parcels in a shorter time. Moreover, the company continues to negotiate with staff and union members on its strategy, future direction, operational change, pay, and job security, to bring the long dispute between the parties to an end. So, buying shares in Royal Mail could be a prosperous long-term investment.
What Kinds of Investors Should Include Royal Mail Stock in their Portfolios?
Shares of Royal Mail should appeal to long-term investors. The company is undergoing both digital and business model transformation. The shift to online services and parcel delivery might take some time to deliver the desired results but there are already some positive results. The company’s financial statement shows revenues from parcel deliveries surpassing revenues from letter deliveries for the first time in 2020.
How Much Should I Invest in Royal Mail?
The amount you invest in Royal Mail stock depends on how much free cash you have, your risk appetite, trading style, and other important considerations. However, the general rule of thumb is not to invest more than 2% of your investment portfolio (or an amount you cannot afford to lose) in a single stock.
How to Buy Shares in Royal Mail Stock
Shares of many companies can be bought either directly from the company through what is known as a direct stock purchase plan (DSPP) or via a stockbroker. However, Royal Mail does not have DSPP in place, so you can only buy the stock through a stockbroker.
Buy Royal Mail Shares via 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). Then, click on the stock and place your buy order. Once your trade has been registered, you will see the appropriate amount of units you purchased displayed on your screen dashboard.
Frequently Asked Questions
The increase in online shopping has created huge opportunities for delivery companies. Interestingly, Royal Mail has been transitioning its business from letter delivery services to parcel delivery services.
Royal Mail has been profitable for the most part since its IPO. The company’s pre-tax profits for the year to March 2021 quadrupled to £726million, from the £180 million it made in the same period in 2020.
Royal Mail has been paying half-yearly dividends but didn’t pay one in the second half of 2020. However, it has restarted paying dividends and is confident about continuing to do so. The company announced that it will pay a £10 per share dividend for this year and set out a progressive future dividend policy of £20 per share from next year.
Royal Mail stock is primarily listed on the London Stock Exchange. However, the stock is also traded on the Frankfurt Stock Exchange and Stuttgart Stock Exchange.
Yes, while fundamental analysis helps you to determine that the company is in good financial health, technical analysis helps you to know the right time to buy. Depending on your trading style, you can buy on a pullback to a support level or the breakout of a resistance level.
Always place a stop-loss order to limit your losses to the amount you intended to risk. Also, invest with only an amount you can afford to lose and do not commit more than 2% of your investment capital in one trade.