Can Royal Mail keep up? Stock Analysis

Royal Mail PLC (RMG) have announced they will introduce Sunday parcel deliveries nationwide in the efforts to keep up with Amazon. Will this keep their share price bullish when lockdown ends?

From next month, Royal Mail will deliver parcels across the UK seven days a week in response to the high demand of online shopping over the pandemic. The service will allow customers to specifically request delivery on Sundays from retailers who use Royal Mail.

Royal Mail is making efforts to future proof their service with new CEO Simon Thompson making that his focus. He also aims to maintain good relations with trade unions. One of his first moves was to broker an agreement with the CMU on the employee pension scheme and cut the working week by 1 hour which could save £225 million per year. And when the company saves, the investor gains.

The Royal Mail share price has risen by 175% since September 2020. While share price increases were expected from the start of the pandemic last spring due to a surge in parcel volumes, the company has surprised analysts with the rate of recent gains. RMG has certainly made a comeback following a slow decline in share price over recent years.

Chart from Shares Magazine

In Q4 of 2020, Royal Mail delivered 496 million parcels, which is an all-time record for the company. The consumer shift towards e-commerce and online shopping has resulted in a massive increase in parcel delivery whilst a 14% decline in letter delivery over Q4 was found. To keep up with demand, Royal Mail has kept on 10,000 of the 33,000 temporary staff hired to cover the hectic festive season suggesting things are looking up.

An estimated profit of £500 million in 2020 equates to an outstanding 78% year-on-year growth rate. 

Graphic from The Financial Times

Buy or Sell?

The Financial Times’ analysts saw RMG as an outperformer. The outperform rating means the company will produce a better rate of return than similar companies but is not the best stock out there in the industry. 

Before you invest in RMG, you will need to open an account with a broker to manage your investments. 

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If you’re just starting out we recommend eToro and easyMarkets for their easy to use interfaces and fee – free trading.

Price Forecast

Over a year, the Royal Mail stock price are expected to fall slightly. The 15 analysts offering 12 month price targets for Royal Mail PLC have a median target of 480.00, with a high estimate of 708.00 and a low estimate of 284.00. The median estimate represents a -3.13% decrease from the last price of 495.50.

Graphic from The Financial Times

If you are interested in dividends it doesn’t look good. In 2020, Royal Mail PLC reported a dividend of 0.08 GBP, which represents a 70.00% decrease from last year. The 9 analysts covering the company expect dividends of 0.05 GBP for the upcoming fiscal year, a decrease of 40.00%.

With the pandemic coming to a close, will online shopping produce enough parcels for Royal Mail to stay bullish? If you are ready to invest, we recommend eToro and easyMarkets for beginners. 

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