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Stock Watch

How will easing restrictions affect the Royal Mail share price?

A close-up of a Royal Mail post box

The Royal Mail [RMG] share pushed on following May’s annual results, hitting a 52-week intraday high at 613.80p on 7 June. The shares have rebounded almost 200% over the last 12 months, as June’s peak fell just short of 2018 highs. Ahead of Wednesday’s first-quarter update, however, Royal Mail’s share price has slipped back almost 10% over the previous month.

Royal Mail share price delivers three-year high

Last year proved to be a solid one for Royal Mail, as full-year profit came in at £726m, in line with previous guidance at the end of March, when management also announced a one-off dividend of 10p a share.

In more good news for shareholders, management also outlined a new progressive dividend policy, with the dividend for 2021-22 set at 20p per share. This led to Royal Mail’s share price pushing back up to the 600p level and three-year highs.

While the pandemic has presented the wider business with several challenges, the parcels business has performed very well, with revenue up 38.7%, although letter volumes were a drag, declining 12.5%. Higher operating costs have been a factor, with a rise of 9.2%, however by and large the business has adapted.

Positive start for new trading year

The new trading year also got off to a positive start in April, as revenue climbed 24.1%, with logistics subsidiary General Logistics Systems showing a 22.3% rise, although Royal Mail parcel volumes were down 2%.

The popularity of online shopping has soared over the course of the pandemic, with people spending far more time at home and online, and this has clearly boosted demand for parcel deliveries. However, with the UK’s so-called ‘freedom day’ finally arriving yesterday, and retailers having already reopened, the e-commerce boom could be slowing down.

With Royal Mail’s share price slipping back over the last month, its biggest challenge is likely to be convincing investors that it can maintain profitability, at a time when packaging volumes might start to slow as the economy reopens. Royal Mail also need to keep a tight hold on costs.

Royal Mail will update the markets in the wake of the easing of lockdown restrictions, with shareholders and analysts closely watching to see how the first three months of its new financial year have been affected. The Q1 update is expected to show May volumes slowing, with more people venturing out as the economy reopens, and consumers shopping from home less.

Analysts bullish on Royal Mail share price

The 14 analysts offering 12-month price targets for the Royal Mail share price have a median target estimate of 662.50p according to the Financial Times, which represents a 26% increase from Monday’s close at 526.20p. There are currently three ‘buy’, seven ‘outperform’ and five ‘hold’ ratings on the stock.
How will the Royal Mail share price react when postal courier delivers its first-quarter results at 7am on Wednesday 21 July?

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