Is RMG a Viable Acquisition Target?

Royal Mail share price continued bleeding as the company continues fighting multiple battles that threaten its business. The RMG stock price is trading at 267p, which is a few points above the year-to-date low of 257p. The shares have collapsed by over 42% from its highest level this year, making it one of the worst-performing FTSE 250 stocks.

RMG challenges continue

Royal Mail Group is fighting numerous battles as the UK economy continues deteriorating. The company’s 115,000 employees have scheduled a series of strikes in a bid to force management to boost their salaries as inflation bites. 

At the same time, the company’s business has continued weakening as demand for its letter and parcel business wanes. This is a sharp contrast to what happened during the Covid-19 pandemic when its business boomed as demand for e-commerce rose. 

Meanwhile, the company is facing a difficult challenge of implementing a turnaround on its business. For one, the firm continues to deliver mail and parcel in all places in the UK, including its most unprofitable routes. Like USPS in the US, the firm is mandated by law to do that. There is also the challenge of its unions and restrictions on businesses it can start.

Most importantly, the cost of doing business is rising as energy prices rise. For example, Ofcom decided to add energy prices by 80% in October, which will affect companies in the UK. Car fuel is also at an elevated level. 

Meanwhile, there are reports that Royal Mail has now become an acquisition target. A Czech billionaire, Daniel Kretinsky has bought a large stake in the company. He plans to raise the stake to 25%, which has attracted the attention by UK regulators. Other PE firms are said to be circling the company. However, because of how it is structured, it is hard to see anyone attempt to buy the company. 

Royal Mail share price forecast

The four-hour chart shows that the RMG stock price has been in a strong sell-off in the past few months. Most recently, the shares have formed a descending triangle pattern that is shown in purple. At the same time, it moved to the 25-day and 50-day moving averages. 

Therefore, the stock is on the cusp of a major bearish breakout that could see it fall to 200p. A move above the resistance at 265p will invalidate the bearish view.