Financial Trading Blog
Stock of the day 13/07/2016 – Royal Mail PLC
After overcoming the same rocky start to 2016 as the rest of the markets Royal Mail saw something of an uninterrupted rise between mid-February and the end of June, climbing all the way to £5.49 on the eve of the UK’s EU referendum results. That’s the best price Royal Mail has seen in over 2 years, and was only 55p away from the highs the stock struck in the few months after its October 2013 IPO. Yet, as is a well-worn tale by now, the Brexit result hit stocks hard, Royal Mail itself plunging 13% (to £4.66) across 2 trading sessions. Since then the stock has largely traded in line with the wider market movements, and now sits at a current trading price of £5.00 (IT-Finance.com, 13/07/2016).
(Source: IT-Finance.com 13/07/2016)
Much of Royal Mail’s rise was fuelled by a pair of strong updates. In January the company reported a 6% increase in parcel volumes for the Christmas period, with a 4% jump in volumes for the 9 months to the end of December; the letters division was less healthy, falling 3% across that 9 month period as people continued to opt for email over the more old-fashioned method of communication.
May’s full year report continued this mixed trend, the figures initially causing a slump in the company’s stock price before seeing a more sustained rally in the week that followed. Adjusted group revenue fell 1% to £9.25 billion, while pre-tax profit plunged 33.3% to £267 million; however, a 5% rise in dividend to 22.1p eventually helped soothe investors’ concerns, as did the robust growth in its European parcels business GLS (where volumes jumped by 10%).
Of course with its first quarter statement next week the company will be forced to comment on the dreaded B-word, while investors will be keen to see if an improvement in parcel volumes can continue to mitigate the seemingly never-ending decline in letter volumes.
Royal Mail PLC has a consensus rating of ‘Hold’ with an average target price of £4.84.
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