An improvement in Royal Mail’s (RMG) financial performance risks being overshadowed by the continuing threat of labour strikes.

On 16 November the company reported operating profit of £260m after transformation costs in the half year to 24 September which was ahead of consensus forecasts for £238m.

Its overseas division GLS continues to perform strongly as sales were up 9% to £1.2bn over the period, driven by volume growth in markets such as Germany, Italy and France.

The UK business remains a sore spot though. Addressed letter volumes were down 5% excluding election mailings during the snap general election earlier this year, which is within the full year forecast of a 4% to 6% decline.

Investors have also been concerned about potential strikes over Christmas. This period plays a significant role in full year performance as people generally send more letters and cards.

In October the company won a legal ruling to block strikes until further talks had taken place. This seven-week mediation process has at least reduced the chances of the festive period being disrupted.

However, analysts at Liberum says there are risks ‘from either higher costs to settle the dispute or the threat of disruption encouraging customers to seek alternatives’.

At the current 400p the shares trade on a March 2018 price-to-earnings ratio of 9.9 times. (LMJ/TS)

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