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View the article online at http://citywire.co.uk/wealth-manager/article/a723535

Royal Mail: divi or growth stock for 2014?

by Danielle Levy on Dec 09, 2013 at 14:43

This amount is approximately two-thirds of the notional full year dividend of £200 million that the directors would have proposed if the company had been listed throughout this financial year.

With underlying free cashflow at £103 million, down from £14 million the previous year and net debt down some £183 million to £723 million – could the stock become a bedrock for income investors?

Gervais Williams of Miton Asset Management says it could. He is positive on the management team’s prospects to turn the business around, opting to buy the stock straight after it floated across the funds he runs. These include the CF Miton UK Multi-Cap Income fund .

‘It does rely on being successful in implementing change, but I do think that at the moment the future looks pretty bright,’ he said.

Although letter volumes are down, he points out they are stabilising. With greater customer levels, he expects Royal Mail can increase market share.

‘They are in a strong position to take advantage of a very comprehensive network of opportunities to deliver across the country in a competitive way,’ he added. This gives Royal Mail a significant advantage against its competitors, he believes.

Challenges remain

Others are less enthused, however, arguing the underlying dynamics of the industry remain challenging, these include David Ridland, an investment manager and founder of Castlebay Investment Partners. The boutique uses a proprietary tool to screen UK stocks on a value basis.

He said Royal Mail had not come up on the screen, which focuses on factors such as sustainable cashflows and high barriers to entry, and was therefore not currently of interest.

‘It is a difficult industry in terms of making money, so that may well hold it back,’ he explained.

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1 comment so far. Why not have your say?

Scroogio

Dec 10, 2013 at 12:11

"Royal Mail is one of the biggest share success stories of the year, having posted a 25% price rise since listing at 330p in mid-October"

£3.30 to £5.98 (at at 10th Dec)... I make that an 81% price rise!

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