Royal Mail At 20 Month High Ahead of H1 Results

Royal Mail are due to release H1 results through to September 27 on Thursday as the share price rallies to levels last seen in March 2019.

Charts (5)

Royal Mail are due to release H1 results through to September 27 on Thursday as the share price rallies to levels last seen in March 2019.

What to expect
The broad expectations is for Royal Mail to reveal plummeting profits as the impact of covid 19, increased competition for other parcel operators and declining letter volumes is felt.
Operating profits are expected to decline to £9 million, down from £165 million a year earlier. However, revenue is expected to increase 8.3% to £5.5 billion year on year.

Letters vs Parcels
Declining letter volumes has been a key theme for Royal Mail for many years now. However, what is becoming more interesting is how well parcel deliveries are doing and are expected to do over the coming years. In its most recent update Royal Mail revealed that it saw a 34% increase in parcel deliveries over the 5 months to August as the shift to digital and ecommerce boom means that there are simply many more packages to deliver offering a boost to Royal Mail’s top line.
However, the firm has consistently failed to restructure in a way that can cope with a move away from its legacy letters towards profitable parcels. This is a move which would involve heavy investment and higher logistics costs.
Royal Mail face a growing need to invest more on automation after a lack of investment in this key area has left Royal Mail playing catch up with competition.

Costs, Covid & Cost Cutting
Costs will also be in focus. Whilst collecting Covid tests has been beneficial for Royal Mail, additional covid costs to keep workers safe will have eaten into profits. Even so cost cutting remains a priority. The firm is still aiming for £130 million cost savings in 2021 -22
Unions
Any news on negotiations with unions will also be eyed closely. Now that CEO Rico Back has left there is hope that the new management will re-engage with the workforce and help push through further efficiencies.

Analysts’ recommendations
Of the 12 analysts watching the stock in the Financial Times, analysts were equally split with their recommendations:
4 rate buy
4 rate sell
4 rate neutral
This indecisiveness surrounding the stock is doing it few favours. Management need to show a strong strategic direction and hit targets on the cost cutting programme before we can expect too many changes here.

Chart thoughts
Royal Mail has put in a solid recovery from its mid-March low, surging to an 18-month high of 283p in the previous session. Royal Mail trades comfortably above its 50, 100 & 200 sma on the daily chart suggesting that there could be more buying on the cards. Resistance can be seen at 295p prior to 310p from Feb 2019.

The 50 sma offered solid support during the October pullback. Should Royal Mail’s results disappoint on Thursday, the 50 sma, today at 245, could offer support. However, a break-through this level could open the door to horizontal support at 220p. A break through here would be needed to negate the current bullish trend.

More from Equities

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.