Royal Mail shares: time for bargain hunting ahead of half-year results?

Royal Mail has had a tough time of late, but is a recovery finally in the works?

When is Royal Mail’s earnings date?

Royal Mail reports first-half (H1) earnings on 21 November, covering the six months to 29 September.

Royal Mail earnings: what does the City expect?

Royal Mail is expected to report operating profit of £232 million, while headline earnings per share (EPS) are forecast to fall 46% to 7.3p, and revenue is expected to rise 2.8% to £5.07 billion. It has beaten estimates for EPS in four of the last eight reports, and has surpassed revenue forecast in six of the previous eight updates.

Royal Mail continues to operate in a highly competitive environment, and the decision by workers to go on strike will not help its business prospects. In addition, it has to find the cash to spend on upgrades to its UK operations, which are expected to cost £1.8 billion, while at the same time its net debt pile sits at over £300 million. The decline in earnings is part of a long-established trend, while the dividend has also been cut. So far there is little sign of either picking up. Indeed, with the yield currently sitting at 11% there is even the potential for another cut in payouts, and as such Royal Mail might not be the automatic destination for income investors looking for a solid dividend payer.

Admittedly, the shares are cheap, at just 9.3 times forward earnings, a level far below the five-year average of 11.7, and only just off the 2019 low of 7.6. This does give them plenty of room to move higher if the firm issues some strong earnings, but with so much competition and ongoing troubles with the workforce, the lowly valuation looks justified.

How to trade Royal Mail’s earnings

There are 14 analysts that cover Royal Mail’s shares, and at present three have ‘buy’ recommendations, while five rate the shares as a ‘hold’ and six rate them a ‘sell’. The current median target price is 205.7p, 10.5% below the present 230p price.

Volatility in Royal Mail shares has risen since August, when the 14-day average true range fell to just 5.5. The current reading is 8.1, suggesting an average move of 3.5%. The average move on results day is 4.6%, while FY results in May saw a gain of 3.3%.

Royal Mail shares: technical analysis

For the moment, it looks like Royal Mail has found a bottom at 178p, potentially halting the downtrend of 2018 and 2019. Since bottoming out in May and June, the price has recovered higher lows, but it has yet to break above the 232p high from September. A move above this would create a higher high and reinforce the bullish view. Conversely, a fresh pullback targets rising trendline support around 200p.

Royal Mail: one for the brave

Technical traders might like the look of the bottoming pattern in Royal Mail shares, while some fundamental investors will be tempted by the lowly valuation. Bad news could spoil the nascent positive outlook here, and certainly the outlook for earnings doesn’t provide much optimism. But if they do surprise to the upside, we could be witnessing the beginning of a recovery.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.


Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.