Royal Mail zooms 7% as it offers double bonanza to shareholders

Highlights

• Shares of Royal Mail Group surged more than 7% on Thursday, 18 November
• The company has announced to return £400 million to the shareholders
• Share buyback programme will be managed by Merrill Lynch International

Shares of Royal Mail Plc (LON:RMG) surged more than 7% on Thursday, after the London-headquartered postal and courier services corporation announced to return as much as £400 million to the shareholders, while releasing the half-yearly results for the six months ended 26 September 2021.

The stock of Royal Mail advanced sharply in the opening hours of trade, extending the gains within minutes, making a fresh one-month high. According to the data available with the London Stock Exchange, the stock of Royal Mail gained 7.53% to a one-month high of GBX 471 from the previous closing price of GBX 438 apiece.

Royal Mail shares (18 November)

Source: REFINITIV

With a gain of more than 7%, Royal Mail shares emerged as the top gainers among the 101 components of benchmark FTSE 100 index, providing major position points along with the heavyweight shares of Compass Group, London Stock Exchange Group, Experian, Vodafone Group, Ferguson and Reckitt Benckiser.

Including today’s surge in share prices, the stock of Royal Mail stands with a year-to-date (YTD) return of at least 35%, while the shares have risen nearly 64% in the last one year.

Following the upbeat revenues driven by the surge in deliveries of parcels during the reporting period, the company has decided to return £400 million of cash to all the eligible shareholders, partly through the £200 million share buyback and a payout of £200 million through a special dividend.

The share buyback programme will be managed by Merrill Lynch International (MLI). For the purpose of share buyback, the company has entered into a non-discretionary agreement with MLI to purchase the ordinary shares of Royal Mail for aggregate purchase price of up to £200 million.

The share buyback programme has been effectuated to reduce the share capital of Royal Mail. The agreement between Royal Mail and Merrill Lynch International commenced on 18 November 2021 and will run up until 19 July 2022.

Royal Mail has also declared an interim dividend of GBX 6.7 per share as the pretax profit registered a multi-fold growth in the six months to 26 September to £315 million as compared to a pretax profit figure of £17 million in the similar period of previous fiscal year. 

The Royal Mail Group has realised an operating profit of £311 million, largely driven by the comprehensive recovery in operations, effectively counterbalancing the negative impact of restructuring changes carried out during the first half of 2020-21 and the widespread repercussions of Covid-19 pandemic.

With millions of households obligated to follow the ‘stay at home’ advisory by the government of the UK during the period of national lockdowns and other stern restrictions due to pandemic, there has been a structural shift in the parcel volumes with the domestic parcel volumes rising 33% as compared to the first half of 2019-20. In the meantime, GLS parcel volumes have risen by 30% as compared to the similar stretch.

The corporation has witnessed benefits following the appropriate actions to reduce costs including £42 million from non-people costs and £56 million from management restructuring. The Royal Mail Group is expecting at least £80 million full year benefit, downsized from £100+ million following 1,700 revisions and realignment activities deployed by the organisation. The company has managed to institute scan-in / scan-out technology at all the regional distribution, as well as mail centres.

The in-year trading cash flows have improved by 36.1% year-on-year to £298 million, subsequent to largely similar contributions by Royal Mail and GLS with the respective cash flows standing at £151 million and £147 million.

Announcement of £200 million in form of a special dividend has been seemingly welcomed by the investors, alongside the interim dividend of GBX 6.7 per share, which is in line with the policy.

For the financial year 2021-22, Royal Mail is anticipating an adjusted operating profit to the tune of £500 million, while GLS is expecting an operating profit margin of nearly 8% with a low-single digit % revenue growth.