Royal Mail PLC Profits Advance 17%


The shares of Royal Mail (LSE: RMG) climbed 21p to 554p during early trade this morning after the postal service claimed its underlying half-year profits had advanced by 17%.

Royal Mail, whose shares joined the stock market during October at 330p and have since traded as high as 587p, said total operating profits for the six months to 29 September had improved from £144m to £283m.

Excluding what the company described as ‘transformation’ costs as well as various one-off items, the underlying operating profit figure increased from £264m to £308m.

Royal Mail’s results also showed sales up 2% to £4.5bn, with revenue from letters down 5%, revenue from junk mail down 3% and revenue from parcels up 9%. Parcels now represent 51% of Royal Mail’s top line.

Free cash flow was £183m and net debt was £723m, which now carries a blended interest rate of 3.5%.

Moya Green, Royal Mail’s chief executive, said:

Our first-half financial performance was in line with our expectations of delivering low single digit revenue growth and margin expansion. The combination of increasing EBITDA and moderating investment spend underpins value creation for our shareholders.

Ms Green confirmed Royal Mail still expected to declare a £133m final dividend for the current year. That payout would underpin the annualised £200m dividend projection made within the group’s flotation document.

A £200m dividend is equivalent to 20p per share and would support a 3.6% income following this morning’s share-price reaction.

Of course, whether that income, today's six-month figures as well as the wider prospects for the postal service all combine to make Royal Mail a 'buy' right now is something only you can decide.

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> Maynard does not own any share mentioned in this article.