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Royal Mail delivery vans are parked at the Mount Pleasant sorting office in London, England, on December 19, 2016.
justin tallis/Agence France-Presse/Getty Images
Shares in beleaguered Royal Mail surged on Tuesday, as the company reported how it has benefited from the move toward online shopping with a surge in parcel deliveries.
Royal Mail RMG, +22.79% shares rose 21%, as the company said U.K. parcel volumes rose 34% in the five months ending Aug. 30, helping to compensate for the 28% drop in addressed letter volumes, excluding election items.
The news wasn’t entirely positive — that shift in mix led to an £85 million increase in costs, plus another £75 million for COVID-19-related expenditures, such as elevated absences and social distancing measures. But Muneeba Kayani, an analyst at Bank of America, says the new figures imply a smaller loss in the U.K., and higher profit from its GLS European logistics business, than it expected.
“The better than expected performance for [the five months] is clearly positive, but the lack of an agreement with the CWU (Communications Workers’ Union) remains a risk given recent disputes and heading into the peak season,” said Kayani, who kept an underperform on the stock.
“While parcels and GLS have been doing far better than expected, it does little to change the fact that Royal Mail has a declining legacy business, still likely to make a significant loss in the current year and not expected to turn a profit until substantial structural changes are made,” added Helal Miah, investment research analyst at The Share Centre.
The broader U.K. market slipped on Tuesday after a surge on Monday, when the decline in sterling lifted the index’s exporters. The FTSE 100 UKX, -0.80% slipped 0.4%.
The pound GBPUSD, -0.96% was still feeling pressure on concern over the country’s stance on European Union trade negotiations, trading at $1.3027 vs. $1.3168. The head of the U.K. government’s legal department has quit over Prime Minister Boris Johnson’s proposal to reverse parts of last year’s Brexit deal relating to the U.K. region of Northern Ireland, the Financial Times reported.
