Royal Mail - your dividends will be in the post

Royal Mail: Despite being almost 500 years old the company is still a stock market ‘newbie’ finding its feet after all the controversy of the badly executed float. When we last heard from them they were bemoaning new competition in parcel deliveries from Amazon, which is also one of their cornerstone customers. Since then, in a cut throat market, City Link has gone bust, taking a modest amount of capacity out. These nine month numbers include the busy Christmas period as they go to 28^th December. In December alone they delivered around 120m parcels, up 4% on last year. Over the nine months, parcel volumes are up 3%, showing an acceleration over the first half figure of 2%, although revenues are flat as price competition bites. Letter volumes continue to decline, but at -3% this was better than the predicted 4%-6% long term trend. In GLS (the overseas operations) volumes and revenues were both up 8%, although a warning bell is sounded about increased costs due to the implementation of an Euro8.50 per hour minimum wage in Germany. The unwinding of their property endowment saw them receive £111m from the Paddington site sale. Their controversial plans for (over) development at Mount Pleasant also are progressing.

Overall, the group says that it is trading in line with expectations and that there are no changes to guidance. The market has been cheered by signs that RMG is fighting its corner in the parcels market and that group wide cost efficiency measures are holding down operating costs. Having popped up to 443p, consensus eps for March 2015 of 32p is a PE of 13.8x, dropping for March 2016 to 13.2x on 33.5p. On these eps, the dividend is likely to be 21.3p rising to 22.3p the year after for a yield progression from 4.8% to 5%. These look fairly attractive metrics, but given the trading history of the shares there may well be more chances to look at the stock nearer the £4 mark over the coming months. (Neil Cumming^, 22^nd January 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower