Royal Mail profits in focus after 80% share surge
Last year's Royal Mail share float continues to divide opinion and analysts in equal measure
particularly with the shares trading well above their float price of 330p, reaching highs of 618p last week as the company prepares to issue its second interim management statement as a publicly listed company
and its first as a member of the blue chip FTSE
One of the factors cited by the government for the relatively low IPO price was uncertainty over proposed strike action by Royal Mail employees over pensions and pay
. Given that over the past few years nearly half of strike days in the UK, have been at Royal Mail, this probably wasn't an unreasonable concern.
This particular roadblock was finally navigated around in December; two months after the initial float after staff and management agreed a pay increase of more than 9% over three years.
The company also conceded ground on a number of other issues on job security, including no compulsory redundancies, extra payments into the pension scheme and no zero hours contracts.
This agreement while greeted with relief by investors will place much greater focus on the company's margins, and overall profitability, even allowing for the fact that we've seen the shares gain entry into the FTSE100 in the December reshuffle
This move into the FTSE100 has also raised another contentious point, or potential time bomb, whatever you want to call it, and could well raise industrial tensions in relation to the remuneration of CEO Moya Greene, with calls for her to be given a substantial pay rise to her £1.5m pay packet. If this week's numbers beat expectations then expect this subject to rise up the political agenda.
Given the recent share surge the company will now have to justify the current rich valuation, with expectations high that the company will have enjoyed a bumper Christmas period.
Sector peer UK Mail last week posted a 6% rise in quarterly revenue
on the back of parcel deliveries in the pre-Christmas trading period, while reporting a 15% rise in volumes in the third quarter.
Expectations of a similar robust set of numbers will be expected from Royal Mail this Friday,
particularly in light of last Fridays blow out retail sales numbers for December, as well as the significant increase in on-line sales reported by various retailers in their recent trading updates, but it should be no means taken as a given, in light of last week's disappointing earnings warning by US bellwether UPS.
reported that its latest numbers would be at the lower end of analyst estimates, though this is more likely as a result of underperformance in its US operation. Nevertheless the company will be reporting final numbers on January 30th with a region by region breakdown.
Last year Royal Mail reported profits of £324m
and this week's 9 month trading update is expected to show the company is on track to meet annual expectations of pre-tax profits of £500m
, on slightly higher revenues of £9.4bn
Given the growth in on-line sales in the past couple of months and the positive on-line updates from high street retailers it would be a surprise, and a disappointment if this number does not come in higher, particularly as this expectation has remained unchanged since October.
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