Analysis of Royal Mail

Company: the Royal Mail PLC

ISIN GB00BDVZYZ77 | WKN A1W5N2

Business: A British mail and parcel delivery company. They are divided into three segments: Royal Mail Group (the collection and delivery of mails and parcels), Parcelforce Worldwide (business express parcel delivery) and the third one is General Logistics Systems (GLS, parcel pickup and delivery in Europe).

Active: Primary focus is the UK and Europe. Mail reach world wide as well as parcel but their core activity is within 27 countries in Europe.

P/E: 17.2

The P/E for the Royal Mail is far too high with 17.2 but the P/B is however acceptable with 1.5. Still it just barely ends up outside of Grahams criteria. The earnings to sales are at around 3% which is ok but the ROE is only 8.6% which they need to work on! The book to debt ratio is also very good with 1.3.
In the last five years they have however had a yearly negative revenue increase in the size of -0.22% which then also gives us a motivated P/E of around 8 to 10 which means that the Royal Mail is today overvalued on the market.
They pay an ok, but also not more, dividend of 2.9% which correspond to 50% of their earnings so it starts to be a bit too high for my liking.

Conclusion: Graham as well as I say no to the Royal Mail. The saying used to be that one should buy whatever the Queen sells but in this case I really do not agree and I have no interest what so ever to make an investment in the Royal Mail today. The P/E is too high, the ROE too low and they pay a small dividend in comparison to the thigh ratio of their earnings that they shuffle out.

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