Royal Mail Group (LSE: RMG) shareholders have had a seriously volatile ride in 2020. By early April, the Royal Mail share price had lost around 45% of its value. That was way worse then the FTSE 100 itself, which fell by about a third in the Covid-19 pandemic.
But since that low point, Royal Mail has put in a stunning recovery. From their lowest point of the year, the shares have more than doubled. The Royal Mail share price is now in positive territory in 2020, up 7%. That would be a pretty respectable performance even without a pandemic lockdown, a stock market crash, and a recession. So what’s it all about?
The price jumped 25% on one day alone, 8 September, in response to the company’s AGM statement. That’s a company struggling to turn round its core business and in dispute with unions over changes to its working practices. The firm said of the Royal Mail division, itself, that “We continue to expect Royal Mail to make a material loss this financial year 2020–21 and will not become profitable without substantial business change“.
Parcels volumes soaring
The enthusiastic investor response looks to be all about RMG’s GLS parcels business. Volumes there rose by 19%, with year-on-year revenue up 18.6%. The division recorded an adjusted operating margin of 8.1%.
The pandemic has helped, boosting online buying for wide ranges of products as people can’t get to the shops. The company said “GLS is well positioned to achieve further success in its markets and has continued to benefit from the growth in B2C parcel volumes“.
Letter volumes continue to fall, and there’s no surprise there. But the overall picture looks positive, with total revenue up £139m for the five months to 30 August. For all the figures for the full six months to 27 September, we’ll have to wait until 19 November. So what would I do about the Royal Mail share price now?
I’m torn by the outlook for the Royal Mail share price. I see a company that’s been in need of serious reform for years. Some of that reform has been forced on it by the Covid-19 crisis. Our dire economic outlook could give the firm’s management more bargaining power too, for the rest of the changes it so badly needs. Persuading workers that sacrifices are needed is hard when a company is overflowing with profits. But it could be a whole lot easier when there’s a full-year pre-tax loss on the cards, as there is this year.
The dividend, currently suspended, is likely to be rebased once it’s resumed. Even with a big rebound in earnings penciled in by analysts for the year to March 2022, we’re still looking at a forward price-to-earnings multiple of 17. And a forecast dividend yield of a little over 1%.
Royal Mail share price still volatile?
The next six months could be critical, and I think things could go either way. We could be at the start of a genuine long-term rebirth for the venerable mail carrier. Or there could be more trouble ahead before things genuinely get better. Interim results could push the Royal Mail share price up further. Or send it crashing back down again. I’m going to wait and see, at least until the end of the full year.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.