Royal Mail (LSE: RMG) is expected to reveal a jump in operating profit of up to 12% to £670m when it announces its annual results tomorrow.
Letter volumes are continuing to fall and, for the first time in Royal Mail’s history, revenue from parcels should exceed revenue from letters.
Group revenues are forecast to rise to £9.44m from £9.15m a year earlier.
The results will invite yet more scrutiny over the government’s 330p listing price which, priced to sell, was far too cautious. On the first day the shares traded up to 455p and have risen above 600p on a number of occasions since.
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There are analysts who remain bullish on Royal Mail.
JP Morgan has set a target price of 756p per share, while Berenberg has said that if Royal Mail cuts costs and sells off its London property, the shares could rise to 1,060p.
We can expect an update tomorrow on the firm’s cost-cutting efforts, which aim to save £50m a year. It was announced earlier this month that Royal Mail’s chief executive, Moya Greene, won’t see a pay rise.
While this is on account of her own “views and wishes”, Donald Brydon, Royal Mail’s chairman, has raised the fear of losing her unless remuneration is improved.
Sunday deliveries
Greene has been behind Royal Mail’s shift towards parcel delivery — a key growth area as internet shopping continues to boom.
UK Mail Group (LSE: UKM), a smaller rival, unveiled a 16% increase in parcel revenues to £220m today.
The group, which handles some 200,000 parcels daily, aims to establish a “market leading position” in parcel, mail and courier services.
A British Retail Consortium/KPMG survey concluded that online purchases of non-food products in March grew at twice the rate of last year.
This is a competitive market and Royal Mail, ever kept on its toes, is to begin trialing a new Sunday delivery service. 100 offices will open for customers on Sunday afternoons starting in late summer.
Moya Greene commented:
“Through these new Sunday services we are exploring ways to improve our flexibility and provide more options for people to receive items they have ordered online.”
So, is Royal Mail a buy?
Based on consensus earnings estimates for 2015 Royal Mail shares trade on a P/E of 12.6.
Royal Mail is expected to announce a final dividend of 13.3p (2.3% yield), which analysts estimate could rise to 21p next year (3.7% yield).
