Can Royal Mail Justify Its Recent Rally?
Connor Campbell | Jan 15, 2018 10:29
Can Royal Mail justify its recent rally when it reveals its Christmas performance on Thursday?
For the first 10 months of the year, 2017 was shaping up to be another ugly one for the British institution. After opening at £4.61 it had slipped to a sub-£3.70 all-time low by the start of November, plagued by fears of industrial action.
Yet its half year report, alongside the gradual dissipation of strike threats, managed to turn things around for the stock, prompting a rally that’s seen it climb back to a current trading price, and rough 12 month peak, of £4.58.
It’s sort of remarkable that November’s interim results were the catalyst for the company’s recovery given that the headline figure was a 30% plunge in pre-tax profit to £77 million, as it dealt with rising pension costs. Things were slightly better than forecast elsewhere, however. Group revenue jumped 2% to £4.8 billion, in large part thanks to the 9% growth posted by its European-arm GLS compared to the flat performance of its UK division. As for the divergence between parcel and letters volumes, the former rose 6% while the latter fell 5%.
Of course, Thursday’s update is likely the most important of Royal Mail’s financial calendar. And there are already signs that the company has seen a fecund festive period – it hired an extra 20,000 employees to help with the increase in action, while all the data released so far suggests that online retailers swelled over Christmas, something that bodes well for its parcels business. There is the danger, however, that Royal Mail’s rather rapid climb in the last couple of months has shifted investors’ level of expectation.
Royal Mail PLC (LON:RMG) has a consensus rating of ‘Hold’ alongside an average target price of £4.36.
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