Aggressive activist investors in the privatized postal delivery service believe Royal Mail can boost profits with deeper cuts.
American activist investors in Royal Mail believe that cost savings could be “far more aggressive” at the newly privatized delivery company, raising the prospect that the business could come under pressure from shareholders.
Brokers said that US hedge funds and fund managers have become the “main buyers” of shares in Royal Mail in the run up to the company’s first set of results as a public company.
Royal Mail is on Wednesday expected to report record half-year profits as a result of an ongoing turnaround program. Analysts are expecting operating profits to be up sharply from £144m a year ago. At the end of the full-year in March, operating profits had doubled to £440m.
The group results will be heavily distorted by a £1bn windfall from a change in accountancy treatments.
Gert Zonneveld, an analyst at Panmure Gordon, said: “We would expect single-digit revenue growth as a result of the ongoing cost control which is allowing underlying profits to improve.”
Shares in Royal Mail have soared from their 330p offer price to as high as 600p. On Friday they closed at 539p.
Vince Cable, the Business Secretary who is facing questioning by MPs on the valuation of the company this week, has dismissed the rise as “froth”. Last week, UBS, one of the banks that helped list the company, issued a sell note, saying the stock looked overpriced.
But some US hedge funds think that Royal Mail could execute deeper cost cuts and yield far bigger profits.
Staff costs are one of the key areas being analysed.
“The productivity improvement rate is really pretty low, given the amount of new technology at the company,” said one source.
“Now 80pc of mail is sorted by technology, yet the productivity costs have only come down marginally in comparison. The company could be far more aggressive on driving the costs savings through.”
Another source said: “There’s been interest from London-based hedge funds, particularly since TCI disclosed its stake. American funds have started looking at the company later but they are becoming the main buyers.”
TCI, the hedge fund run by Chris Hohn, was the first investor to build a disclosable stake in Royal Mail. The London-based firm, which is known as one of the most aggressive funds in the world, is Royal Mail’s biggest shareholder with a 5.8pc stake.
The TelegraphLouise Armitstead,