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Stock Watch

Will Royal Mail share price post further gains after latest results?

Roayl Mail share price: A Royal Mail worker collects letters from a post box

The Royal Mail [RMG] share price hit a record low of 120p just over a year ago, but has since rallied by more than 400%, as it quickly became apparent that the British postal and courier company was likely to be a big winner from the Covid-19 pandemic.

Royal Mail’s share price recovery

By May 2020, the Royal Mail share price had crept up from those April lows to 175p – and by yesterday’s close, RMG shares had climbed to 528.8p, a jump of 202% in 12 months.

The gains in Royal Mail's share price give the company a market capitalisation of £5.27bn, which is likely to see the company promoted to the FTSE 100 in the next quarterly reshuffle.
In the first half of this year, revenue increased by 9.8% to £5.67bn, however a sharp rise in costs led to the business slumping to an operating loss of £20m, driven by £85m in safeguarding measures as a result of Covid-19.

Parcels rise addresses fall in letter volumes

Unsurprisingly, addressed letter volumes were down 28%, as total letter volume dropped 33%, with adjusted operating losses here coming in at £180m, and revenue falling by 20.5%. However, parcel volumes more than compensated with a rise of 31%, and a rise in revenue of 33.2%.

In Q3, parcel volume had risen 37% year-to-date, as the business experienced its best-ever quarter, handling a total of 496m parcels.

Further outperformance anticipated

As we look ahead to the full-year numbers, more of the same is expected in terms of outperformance. Management has already delivered a one-off final dividend of 10p per share, with the business set to deliver a group adjusted operating profit of £700m.

Full-year revenue for the year is expected to come in £900m higher than last year. The company also said that restructuring costs were expected to be lower at £90m, instead of the previously anticipated £140m.

The outlook for the business is much more positive now, with the company fending off Amazon to win a multimillion-pound contract to deliver millions of Covid-19 testing kits in the UK.

Wall Street analysts covering the Royal Mail stock are largely bullish, with six ‘buy’, four ‘hold’ and two ‘sell’ ratings, according to MarketBeat. While the analysts’ have an average 12-month price target of 417.2p, well below the current Royal Mail share price, their high target of 708p represents a gain of 33% from Tuesday’s closing level.

How will the Royal Mail share price react when the current FTSE 250 constituent releases its annual results at 7am on Thursday 20 May?

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