Royal Mail Group (RMG): What are its growth prospects in 2022?

January 10, 2022 10:39 PM AEDT | By Rishika Raina

Royal Mail Group (RMG): What are its growth prospects in 2022? — Image source: Shutterstock.com

Royal Mail group performance

As the demand for delivery services has rapidly increased over the past few years, the business of the group has also expanded. In comparison to its share price two years ago, Royal Mail started trading at over double the price in 2022. Royal Mail was among the top FTSE100 performers in 2021 with its share prices going up by approximately 50%.

On 18 November 2021, the company had announced a special dividend of 20p per share. The shareholders who were on the register on 3 December 2021 are all set to receive the special dividend along with the ordinary interim dividend of 6.7p per share on 12 January 2022. These dividend payments make Royal Mail shares a good source of passive income and help in attracting new investors.

A share buyback programme of £200 million was also announced by the group in November 2021. Thus, over £400m is being returned by the group to the investors, through the share buyback and the special dividend. The earnings per share of Royal Mail are expected to go up with the share count going down due to the share buyback.

According to the half year report released by the group in November 2021, its revenue has increased by 7.1%, going up from £5,671m to £6,072m for the half year ended 26 September 2021. Additionally, an operating profit of £311m was reported by the group, as compared to a loss of £20m in the same period last year. Also, basic earnings per share went up from 0.4p to 30.3p.

The market cap of the FTSE100-listed Royal Mail Group plc (LON: RMG) stood at £5,206.25 million and its shares closed at GBX 518.80, down by 0.69%, as of 7 January 2022.

Outlook for 2022

The 2022 outlook is so far positive. An adjusted operating profit of approximately £500 million is expected by the company’s Royal Mail division as compared to £344 million reported in its most recent full-year results. The company foresees an 8% operating profit margin and a moderate growth in revenue in its General Logistics Systems business in 2022, which is slightly lower than the 8% adjusted operating profit margin last year. Thus, the earnings in the business division could possibly be lower this year. However, the strikingly better outlook in the Royal Mail business would potentially compensate it.

The turnover of the company has been increasing in the past and could further increase in 2022 with the expansion in demand for parcel delivery, which constitutes more than 70% of the total revenues of the company. Nevertheless, there is an increased risk of higher costs for the business with the labour becoming costlier accompanied by a reduction in working hours. The profit margins of the company may also fall due to an increased price competition in the parcel business.

Bottomline

Despite the above-mentioned risks, Royal Mail shares may hit a new record high in 2022. The company has the potential to capitalise on the transition towards e-commerce due to the pandemic and is expected to provide strong returns to its shareholders in the future as well.

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