Driving the increase in profits was a drop in costs and a rise in parcel deliveries. Investors welcomed the news, with Royal Mail’s share price increasing to 559.25p in morning trade, up 4.9% on yesterday’s close.
Reacting to the results, Hargreaves Lansdown Stockbrokers’ head of equities Richard Hunter said that the result’s reception had been “warm” despite “increasingly loud whispers” over its £3bn IPO.
Going forward, Hunter said that while Royal Mail’s combined UK parcels and GLS division now accounted for just over half its revenues – which provides opportunities – concerns remain over the “gradual but terminal” decline in its letters business, while the 3.5% dividend yield of Royal Mail’s shares, which has suffered as a result of price appreciation, is below its sector competitors.
Performance in-line with expectations
Speaking to investors, Moya Greene, Royal Mail’s chief executive officer, offered a more positive slant. She 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."
The firm also pointed to what lied ahead – Christmas is its busiest period and the threat of strike action has only caused a slight slowdown in business, though depending on December volumes, this could lead to broadly unchanged parcel delivery numbers being reported later on.
Leaving these concerns to one side, Hargreaves’ Hunter said that central to the investment case for Royal Mail was its share price rally since its flotation. Prior to today’s update for the six months to 29 September Royal Mail’s shares were up 62% from their offer price and 18% on their first day’s trade. In hunter’s mind, this makes Royal Mail shares a ‘hold’.
