Royal Mail can deliver a boost for home shopping

HOME shopping companies should do well out of changes to the Royal Mail’s structure because it will lower the cost of posting catalogues, says broker Numis, which has given its stamp of approval to Findel and N Brown.

Under the new tariff system, which comes into effect in September next year, it is expected that posting smaller, heavier items will be cheaper while mailing costs for large but light items will rise.

HOME shopping companies should do well out of changes to the Royal Mail’s structure because it will lower the cost of posting catalogues, says broker Numis, which has given its stamp of approval to Findel and N Brown.

Although the cost of sending out orders to customers is not expected to change significantly, Numis says the lower cost of sending out catalogues that should result from the changes is a boon for home shopping companies.

It points out that marketing and promotional costs can account for 20% of sales for a typical homeshipping company. With postal costs making up some 40% of those overheads, mailing is “a very significant cost line” for both companies. With postal costs typically amounting to 8% of sales, Numis calculates that N Brown might be in line for a saving on postal costs of Pounds 5 million a year and Findel Pounds 3 million.

It is not yet changing its forecasts because the pricing changes are still some way off, but argues there is “decent upside” for both stocks. For now, it rates Findel a buy, with a 600p price target, and N Brown a hold, with fair value at 152p.

Ideal Shopping, ASOS and Kleeneze are “less likely to benefit directly”, it says in a note to clients, because they do not rely on mailing out catalogues to drive their businesses. The Royal Mail’s pricing overhaul should make little difference to GUS’s Argos, it adds, because most of its catalogues are picked up in-store.