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FTSE100 6,696 -12.5 pts (0.19%)

Wed close: Royal Mail hit by competition

Royal Mail shares fell sharply as the company marked its first year on the stock market with a warning about competition.

Operating profits fell 21.5% but it was renewed concerns over rivals having an unfair advantage that caused most concern for investors who marked the shares 8% lower to close at 430p.

Market watchers said this was a wake-up call for those who bought in believing the company would ride the growth in parcels trade due to the growth in online shopping. Royal Mail said its rivals were being allowed to “cherry pick” the best assets while it was committed to providing a universal service.

Investec placed its ‘hold’ rating and 430p target price for the shares under review following the statement.

It said that the company had done better than expected in its UK letters business with revenues growing 1%, as well as its European parcels division where sales rose7%.

Royal Mail said that Amazon’s own delivery network is expected to reduce the annual rate of growth in the UK addressable parcels market to just 1-2% for the next two years.

Investec analyst John Lawson said more encouraging news was that costs were under control while Alex Joyner at Galvan Research said more cost cutting will be needed.

However, the government as a big shareholder with an election to fight will not want to see any large-scale redundancies.

Analysts at Barclays said pub stocks are “very likely” to be down-rated after MPs voted to scrap the ‘beer tie’, which means that tenants can now buy beer on the open market.


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