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Last month saw the demise of City Link, one of Royal Mail’s competitors in the parcel delivery sector. This news saw its shares bounce, but City Link was not its biggest competitor and only had a limited market share.
Arguably, more beneficial to the company has been the move in property valuations and the migration to sorting out of central London premises. After previously seeing the book value set at £500 million, it now appears that £1 billion might be closer to the mark. Potential customers are becoming increasingly aware of the value of both click-and-deliver and click-and-collect services, resulting in greater competition in this sector for the business.
At present, institutional expectations are for adjusted earnings per share to increase from £0.263 up to £0.32, while sales are still being called at the same levels as last year; however, pretax profits are expected to collapse from £1.666 billion to £407.143 million. Analysts are evenly divided on the company’s outlook, with seven buys, six holds and six sell recommendations. The average price target for the next 12 months is 457p, 30p above current market prices.
It has been a year since it floated and the company finds its share price well above the IPO price but fractionally above the initial trading price. The last four months have seen the share price swing wildly between 480p and 390p as the markets are still struggling to get to grips with where the company is and what its fair value is. The latest trading update might not offer too many signs for encouragement, but as the company continues to restructure value should appear. However, any break below 390p would be worrying.