The Royal Mail (LSE: RMG) share price has dropped after a disappointed reception to full-year financials. After an initial spike, the FTSE 250 firm had fallen to two-and-a-half-week lows below 500p at one point. At 515p it was last trading 2% down in Thursday business.
Royal Mail’s share price has dropped after it decided not to issue guidance for the current financial period. The company also advised that parcel volumes have started to slow in recent weeks.
Parcels revenue rockets
Business at Royal Mail has surged over the past year as Covid-19 lockdowns — and the subsequent explosion in e-retail — lit a fire under the volume of parcels passing through its depots.
Revenues at group level soared 16.6% in the 12 months to March 2021, to £12.6bn. Sales at its Royal Mail division in the UK increased 12% whilst revenues at its GLS overseas unit rocketed 27.8%.
Packages volumes across the company’s domestic and international operations roared to 1.7bn last year, up 32% on the year. At Royal Mail, these rose 42% year on year, to 1.5bn, but letters volumes here fell by a quarter to 9.5bn.
The surge in package volumes, along with ongoing restructuring costs, caused operating costs to rise 13% from the previous year. These came in at £12bn. Still, this did not stop profits soaring at a stratospheric rate.
Pre-tax profits rose to £726m in financial 2021 from £180m the year before.
Progressive dividends return
Thanks to its “stronger than anticipated financial performance” last year, Royal Mail pledged to pay a 10p per share one-off dividend to shareholders. It also said it would pay a 20p per share dividend for FY22 as part of a new progressive dividend policy.
However, investors have been spooked for a couple of reasons in Thursday business. First, as I mentioned, the Royal Mail share price has fallen after the business elected not to issue guidance for the new financial period.
According to non-executive chairperson Keith Williams, “the outlook contains a number of uncertainties that could significantly influence volumes and costs”. He added that “it is difficult to provide specific guidance.”
Royal Mail’s share price: too cheap to miss?
Royal Mail has also taken a whack today on signs that parcel volumes are beginning to cool. At its domestic operations, the group saw package numbers drop 2% year-on-year. The firm also noted that “parcel volume growth at GLS remained strong until mid-April, with a subsequent slowdown given the high volumes observed last year.” It said too that it expects “some volatility” as Covid-19 lockdowns are unwound in the coming weeks.
I think Royal Mail’s share price offers great value for money following today’s dip. The courier trades on a forward price-to-earnings (P/E) ratio of just 9.2 times. And that pledged 20p per share dividend for this year creates a chunky 4% dividend yield. Whilst the increasingly-competitive landscape is a problem, I’d still buy Royal Mail shares to ride the e-commerce boom.
