Royal Mail (LSE: RMG) has continued to be mauled by the bears in the first quarter. Its share price — which had already taken an absolute hammering in 2018 — has fallen by an additional 13% since the start of the year.
I’m not going to say the market isn’t entitled to be concerned about the terminal decline of the letters market and the likely prolonged impact of Brexit this year (and probably beyond). What’s more, Royal Mail’s underperforming cost-cutting programmes to offset revenue troubles now and in the future isn’t exactly something to inspire confidence.
A bulked-up boardroom
But I’m much more upbeat than the broader market about the courier. More short-term trading trouble may well be on the cards, but the broom that’s swept through the boardroom gives me belief that things may be about to improve.
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Chief executive Rico Back, who took the reins last summer, was one of the founding members of Royal Mail subsidiary General Logistics Systems (then German Parcels) in 1989, and the architect of the division’s rise over the past 30 years, a record that saw him get the top job last June.
But this isn’t the only impressive appointment in recent times. It was announced earlier this month that former British Airways veteran and current deputy chairman Keith Williams will occupy the top step of that particular ladder when current chair Les Owen vacates in May.
I’ve long lauded the brilliant progress that General Logistics Systems is making across Europe and so Back’s elevation to the FTSE 250 firm’s hot seat fills me with plenty of optimism.
The long-term revenues at Royal Mail were already compelling because of the impact of e-commerce on parcel volumes, as well as organic and inorganic expansion in Europe and, more recently in North America, provides other reasons to be bullish.
Now the tough economic picture in Britain means that the company’s bottom line may get worse before it gets better, and this could be reflected in additional share price weakness in the months ahead. That said, with Royal Mail carrying a dirt-cheap forward P/E ratio of 9.4 times and a gigantic 9.5% dividend yield, I reckon the stock is still worthy of serious consideration today.
A bonus buy!
Before you go, I’d like to draw your attention to Sanne Group (LSE: SNN), another first-quarter FTSE 250 sinker that’s a top buy today.
The business, which offers fund and corporate administration services, is down 10% in the year to date. But that’s not in reaction to profits pressures like Royal Mail, but because of news in January that chief executive Dean Godwin is to part ways with the company.
The departure of such an influential figure in Sanne’s growth story isn’t ideal, clearly. But, as my colleague Alan Oscroft pointed out, Godwin won’t be passing the reins to a complete novice. And in the meantime, sales continue to explode across the US and Europe and are picking up in Asia too.
Right now, Sanne sports a forward P/E ratio of 17.9 times which, while on paper, is decent value in my opinion, given the rate at which revenues are surging (up 26% in 2018), for example. I reckon this firm’s also a splendid dip buy right now.
