MARKET REPORT: More bad news in post for Royal Mail investors

Investors in Royal Mail face further reductions in their dividends, German bank Berenberg has warned.

Analysts said the FTSE 250 firm’s turnaround plans, which are aiming to move it away from letters and toward more profitable parcel deliveries, were becoming ‘increasingly difficult’ and cuts to earnings alongside higher spending would leave very little cash flow to cover the payments, meaning it would probably have to borrow money instead.

As a result, the bank said, further delays to the transformation efforts meant the risk of a dividend cut will re-emerge unless Royal Mail improves earnings in its 2024 financial year. It downgraded stock to ‘sell’ from ‘hold’.

The assessment may spook some shareholders, who have already seen the dividend cut 40 per cent to 15p per share for the current year.

However, if the situation worsens they could see the payout fall further or disappear entirely. 

Shares fell 0.5 per cent, or 1p, to 193p as the the FTSE 100 ended the session 113.51 points higher, at 7439.82, while the mid-cap FTSE 250 index flew up 279.08 points to 21,439.93.

Mulberry climbed 5.1 per cent, or 13p, to 267.5p after Mike Ashley took a 12.5 per cent stake in the luxury goods firm through Frasers Group, the new name for his Sports Direct empire. 

Private hospital operator NMC Health continued to take a hammering, tumbling 3.3 per cent, or 34.5p, to 1001.5p, although it said it knew of no specific reason for the latest plunge.

Stock Watch – XLMedia 

Digital market XLMedia, plunged as it warned that its revenues would be hit by the demotion of 107 of its websites in Google results by an apparent change in the search engine’s algorithm.

It said it would be looking to uncover the reason behind the demotions and reinstating the webpages in Google’s rankings but, until the sites were restored, it expects to lose up to £1.5million in revenue each month.

Shares slumped 28.9 per cent, or 9.75p, to 24p.

Budget airline Wizz Air edged up 0.9 per cent, or 39p, to 4199p after a private equity firm, Indigo Partners, bagged £500million by selling all but 4 per cent of its 20.6 per cent stake in the carrier. 

Diagnostics firm Genedrive was sickly, plunging 66.7 per cent, or 14p, to 7p after shipping delays and slow sales for its hepatitis C detection kit caused pre-tax losses for its first half to widen to £3.3million from £1.7million alongside a revenue fall to £600,000 from £1.5million.

Turkey-focused gas player Valeura Energy was deflated, sinking 27.1 per cent, or 8p, to 21.5p after saying its joint venture partner Equinor will discontinue its participation in a deep gas project.

A profit warning hit security and surveillance group Petards, which tanked 22 per cent, or 2.75p, to 9.75p after saying a delayed order for its Eyetrain system and lower profitability from two rail schemes would, mean a pre-tax loss for the full-year and revenues that were below market expectations.

Origo Partners also crashed 30.6 per cent, or 0.06p, to 0.12p, when the sale of its portfolio company, Celadon Mining, was abandoned after an arbitration request spooked a potential buyer. 

In the risers, biotech group Tissue Regenix surged 17.5 per cent, or 0.17p, to 1.18p, following restoration of its critical IT systems after a cybersecurity breach last week.

Oil minnow Andalas Energy gushed 44 per cent, or 0.06p, to 0.18p after unveiling new chief executive, Leslie Peterkin, and non-executive chairman Mark Rollins had subscribed for £500,000 worth of shares. 

Miner BlueJay flew 4 per cent, or 0.32p, higher to 8.13p after what it said were highly encouraging results from geochemical testing at a project in Greenland.

And fellow digger Greatland Gold was a bright spot, jumping 12.7 per cent, or 0.43p, to 3.83p, saying it had hit high-grade gold mineralisation in Tasmania, Australia.

DX Group shares climbed 4.1 per cent, or 0.5p, to 12.62p after the logistics specialist delivered an upbeat trading update that described ‘encouraging’ trading in the first half of its current year.

There was also some sparkle from Gem Diamonds, which was lifted 5.7 per cent, or 3.6p, to 66p after it said it had it unearthed a 183-carat diamond at a mine in Lesotho.