Why are Royal Mail shares on a rising spree in 2021?

Summary

  • Royal Mail shares have largely risen in the present calendar year so far
  • Strong growth at Royal Mail & GLS has substantially supported the group
  • Stock has rallied more than 225 per cent in the last one year 

Shares of Royal Mail Group Plc (LON: RMG), the London-headquartered postal courier company, have largely risen in the present calendar year so far. The amicable appreciation in the share prices helped the company to reverse the losses incurred during the pandemic-led crash. Interestingly, the stock of Royal Mail has managed to regain most of its lost value during the dejected trading activity between May 2018 and April 2020.

The Covid-19 pandemic has adversely impacted most of the enterprises, but a few businesses have survived well enough primarily due to the large chunk of cash reserves and balance parked with the financial institutions, and the effective modifications in the operative procedures that have worked to minimise the cost heads and, at the same time, increasing the revenues.

 

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Over the course of the last one year, Royal Mail has successfully capitalised the prolonged requirement of home delivery. Strong growth at Royal Mail, as well as GLS has substantially supported the Royal Mail Group.

As a result of the enlarged earnings bracket, shares of Royal Mail stand with a YTD gain of a little more than 75 per cent. According to the historical data available with the London Stock Exchange, the stock of Royal Mail soared 79.6 per cent to GBX 606.40 from the share price level of GBX 337.70 apiece.

Royal Mail shares (YTD)

Image Source: REFINITIV

In the last one year, the stock has rallied more than 225 per cent, defying the Covid blues. Earlier in May 2020, the company reported a 116 per cent growth in the group’s adjusted operating profit. The parcel collect services have had a major impact on the earnings in the last financial year with the revenue from the category jumping 38.7 per cent, partly counterbalancing the 9 per cent rise in operating costs and 12.5 per cent decline in the revenue from letters.

The group recognised  a trading cash flow to the tune of £762 million in FY21, up 37 per cent from cash flow of £556 million. Royal Mail has also proposed a one-off final dividend of GBX 10 and has set a progressive dividend policy for the present fiscal year.

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A phenomenal part of the growth in share price has been realised in-line with the rise in the benchmark indices. Collectively, the on-track vaccination status and the ever-vigilant test and trace drive supervised by the National Health Service (NHS) have substantially helped in reducing the Covid activity in the country, thereby reinstating the lost confidence amidst the investors.

The blue-chip heavy FTSE 100 index has amassed a gain of nearly 10 per cent on a year-to-date (YTD) basis. A return of 10 per cent in a period of little more than five months is quite impressive for the headline index as the United Kingdom government had to announce the third national lockdown, unlike the global scenario in the first quarter of 2021, under which most of the enterprises were ordained to shut their operations.

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