The AskTraders Analyst Team features experts in technical and fundamental analysis, as well as traders specializing in stocks, forex, and cryptocurrency.
Royal Mail (LON:RMG) shareholders have, over the last few years, had a particularly bumpy ride. After being floated on the London Stock Exchange at 330p, the shares then peaked at 632p and just two years later printed lows of 121p.
Such levels of price volatility are more usually associated with Silicon Valley start-ups rather than a UK-based postal service, so naturally, they catch the headlines. Another reason the whipsawing price action is widely reported is that a large number of retail investors bought Royal Mail shares when it was first listed in 2013.
The market has something for everyone. Many of those retail investors have been left wondering if now is the time to sell Royal Mail shares or if the worst is over and they should keep hold of them. Then there are short-term speculators looking to trade the noise and run strategies to catch upward and downward price moves. In the background, long-term investors with a buy-and-hold approach, have been taking positions with an aim of riding out the short-term fluctuations.
This article will outline the ways to make an informed decision on the firm’s valuation and how to find a reliable broker to help you turn your plan into action.
Royal Mail can trace its roots back as far as 1512 but has only been publicly listed since 2013. Its move to the stock market was the big UK privatisation story of the decade and one that stoked considerable controversy.
Following a tried and tested approach, the government floated the stock at a discount large enough to ensure the offering was fully taken up — a damp squib being politically unappealing. This meant all buyers, including large City institutions, benefitted from the government’s generosity.
Source: Yahoo News
Some of the day-one investors sold their positions and locked in a small profit. Others held on to the positions and might not have bargained for the rollercoaster ride that followed. In a report released in November 2020, the general public and Royal Mail staff were reported to still own 25% of the company.
Royal Mail is listed on the London Stock Exchange. The firm currently has a market capitalisation of around £5bn. With membership of the FTSE 250 index, Royal Mail trades under ticker RMG.
Those asking the question, ‘is it a good idea to buy Royal Mail shares?’ need to establish whether the firm is undervalued or not. There are various factors in play:
Once you’ve made your decision to buy or sell Royal Mail shares, the process of putting your cash to work is incredibly straightforward. Online brokers have significantly changed the investment industry and represent one of the cheapest ways to buy Royal Mail shares.
Step one is to ensure you’re using a regulated broker, one that operates under licence from at least one of the below tier-one regulators.
All of the brokers in the below table meet these criteria and have been operating for many years, making them trustworthy. Their success also comes down to the additional support services they offer clients, including free research and learning to assist with the skills needed to trade.
It’s possible to access and manage your account in a variety of ways, including on desktops or mobile apps.
Even if you’re still just considering whether to pull the trigger or not, then the risk-free demo accounts on offer can introduce you to the trading experience and offer the chance to trade Royal Mail shares in a simulated environment.
Buyers of Royal Mail shares tend to have a long-term investment horizon. The restructuring of the firm is a multi-year project, meaning the returns generated from the overhaul are unlikely to come through in the very near future.
As a result, a lot of the research on the firm focuses on the likelihood of that proving successful or not and the time it might take. The good news is that good brokers have an abundance of research notes, charting tools and news reports to help those buying Royal Mail shares make an informed decision.
The following case study gives an insight into fundamental analysis and the life-cycle of a medium-term trade. The piece explores the types of resources used to spot the investment opportunity using publicly available information and how that plan was put into action.
The research on offer can vary depending on the broker. Some brokers prioritise client support while others provide an adequate supply of materials and instead compete on price.
Opening a demo account is a good way to establish which approach is a good fit for you. It’s also a good idea to try out demo accounts with several brokers. Registering to buy Royal Mail shares in a virtual account only requires an email address and takes less than 60 seconds.
Upgrading to a full account and depositing funds requires a little more online form filling. Regulated brokers have a duty of care to their clients, which means they’ll ask Know Your Client (KYC) questions to build up a profile for you. This ensures they treat you in accordance with regulatory guidelines.
After the form filling is completed, it’s a case of wiring funds to your new account. Brokers offer a variety of payment methods, including credit/debit cards and bank transfers, so the process has a feel of any other sort of online shopping. One thing to watch out for is that some of the payment methods are cheaper and quicker than others, checking the T&Cs can avoid unnecessary charges being applied.
The trading monitor on your broker platform will offer up a range of data fields so that you can build your instruction to buy or sell Royal Mail shares. If you are particularly bearish about Royal Mail’s prospects, you can use a broker that offers CFDs to sell short and look to profit if price falls.
Most brokers offer additional order types, which build trading decisions into the system so you can trade in or out of positions automatically. These help mitigate risk and mean you don’t have to watch the markets 24/7.
These other order types are optional but worth learning about because they can save you time and money. Another top tip is to check if stop-losses or take profit orders are default settings on your account. If that’s the case, and you don’t override them, then you might check your account to find you unintentionally traded out of a position.
Once you’ve decided to buy Royal Mail shares, the final step is to enter the amount you want to buy and click the order confirmation button. Even if you’re looking to buy Royal Mail shares for the long-haul, there are ways to optimise your trade entry point, as explained in this article on the best time to trade.
After trading, be sure to check your positions. Even experienced traders make ‘fat finger’ errors which are best corrected before price moves too far.
The length of time you expect to hold your Royal Mail shares will determine whether it’s more cost-effective to buy the shares outright or in Contract for Difference (CFD) form. This research report on the pros and cons of CFD vs Share Dealing goes into that in more detail. If you intend to hold your investment for months and years rather than days or weeks, then buying Royal Mail shares outright will help you avoid overnight financing charges, which can stack up in the long-run.
Competition between online brokers is fierce, which has led to the costs associated with share dealing being driven down. It’s still important to make sure you’re familiar with the T&Cs so that you don’t rack up administrative charges that you could otherwise avoid. Fees to watch out for include:
|Live Account Fee||No charge||No charge||No charge||No charge|
|Demo Account Fee||No charge||No charge||No charge||No charge|
|Bid Offer Spread – RM shares||0.52p||3.52p||0.46p||No market|
|Cash Deposit Fee||No charge||No charge||No charge||No charge|
|Cash Withdrawal Fee||Yes – $5 per transaction||No charge||No charge||No charge|
|Inactivity Fee||Yes – $10 per month after 12 months inactivity||Yes – $10 per month after 3 months inactivity||Yes – $10 per month after 3 months inactivity||Yes – $50 per quarter after 3 months inactivity|
|FX Conversion Fee||Offers accounts in USD, only||Offers accounts in USD, GBP and EUR||Offers accounts in 14 base currencies incl. USD, GBP, EUR||Offers accounts in USD, GBP, EUR, CHF|
|Minimum Deposit||$200 (or equivalent)||$100 (or equivalent)||$250 (or equivalent)||$100 (or equivalent)|
Royal Mail’s large retail investor base means it’s likely to remain in the headlines for some time. Opinion is divided as to whether Royal Mail is a ‘buy’ or a ‘sell’ and the wild share price moves reflect this.
There are a large number of shareholders waiting for price to recover to levels where they can exit their legacy positions, but those who are new to the situation and not holding loss-making positions face a more exciting proposition. Nothing is ever guaranteed but now looks as good a time as any to step in and buy Royal Mail shares.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 75 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .