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Institutional investors are betting on Royal Mail shares for the long term, according to data from artificial intelligence specialist Irithmics. The firm analyses investor behaviour and news flow as part of its work in an effort to isolate critical trends in share prices.

Investors are exhibiting a positive bias for Royal Mail on both the short and long term horizons and are less likely to respond to news flow, data shows. Overall there is solid appetite for Royal Mail stock. The Royal Mail share price is currently at 218, close to a previous short term resistance level set at 226.

Strike action in short term threat to Royal Mail share price

Royal Mail is currently in discussions with the Communications Workers Union (CWU) about possible strike action. We are entering that delicate time of year when the post goes crazy as people start sending Christmas cards and buying presents from Amazon. This is usually prime time for a strike and both sides know it. Shareholders look like they are pricing in possible ructions over the Yuletide period.

The CWU voted 97% in favour of a nationwide strike in October. It argues that Royal Mail failed to stick to a pension agreement it concluded with the union last year. Royal Mail claims that it has honoured the agreement it made with the union in 2018, which included two pay increases and a reduction in working hours.

The strike action would not be good news for Royal Mail’s long term prospects as many other companies have arisen to serve postal and parcel needs in the UK, as well as established players like UPS and DPD.

Royal Mail is playing catch up with these competitors once again as we enter the Christmas period. Investors have liked the fact that it is thinking about new services it can introduce to defend its position, like parcel post boxes and a second daily parcel delivery service for next day orders, but it may be too little, too late. This has all required a sizeable investment and in turn required a dividend cut. A 15 pence dividend is being seen as the base.

Institutional investors remain loyal

There is a strong core of institutional investors in Royal Mail shares who are sticking with the company and are positive about its long term outlook. Strong parcel growth is continuing to offset declining letter volumes, which these days seem to be increasingly to do with financial services statements, bills and government communications. In its last set of results Royal Mail profits were down by about a quarter.

Royal Mail is going all in with its parcel business, and it probably needs to if it is going to stay relevant.

Royal Mail shares continue to look fairly range bound, with an established resistance level at about 225-230 after which they drop away again. A buying opportunity seems to exist at under 200. If strike action over Christmas takes the share price under 200, then the long term sentiment of institutional investors could create a short term chance to pick the stock up for a quick buck over a 60 day time horizon.

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Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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