Royal Mail share-price forecast: Is there any upside ahead?
Royal Mail Group Plc (RMG), the London-based postal service and courier company, has had a rather volatile performance since the pandemic began. The stock began to move upward towards the end of March 2020, hitting a high 591p on 30 May 2021. Since then, the stock price plummeted to 354.7p at the time of writing on 21 April.
The rise of the Royal Mail share value from end-March 2020 to end-May 2021 was likely due to increased company operations, as e-commerce spending grew in that period as a result of the Covid-19 lockdowns in the UK and abroad.
Conversely, the reopening of economies reduced the demand for Royal Mail services in international markets. This is evident from the plunge in total parcel volume (international) to 40 million in the fiscal third quarter of 2021 ending in December 2021 from 68 million in the year-ago period. The total parcel volume was 82 million in Q3 2019, as mentioned in the firm’s fiscal Q3 earnings release.
Let us take a closer look at Royal Mail’s overall performance, the firm’s recent financial results, and technical analysis to deduce whether the Royal Mail shares are a ‘buy’, a ‘sell’ or a ‘hold’.
Performance in 2021 and Q1 2022
RMG shares surged 49.8% throughout 2021, a growth largely attributed to the higher demand for its parcel services in the first five months of the year. In the period from 30 May 2021 to 1 January 2022, however, the stock price plummeted by 12.6%. In contrast, the London Stock Exchange (LSE), where the stock is traded, declined 6.7% during the reported period.
In the first quarter of 2022, the company’s stock plunged 35% while the LSE surged by 16.7%. The stock’s 52-week low-high range was 317.15p to 613.80p (as of 21 April), according to data from the LSE. Royal Mail has a market capitalisation of £3.2bn ($4.2bn).
RMG technical analysis
According to TradingView, the stock’s moving average convergence divergence (MACD) level (12, 26), pointed toward a ‘buy’ based on a reading of -8.1 (over a one-day period). The MACD is a momentum indicator where the reading is obtained by deducting the 26-period exponential moving average (EMA) from the 12-period EMA.
The Relative Strength Index (RSI) was pointing to ‘neutral’ at 57.1 over the same period. The RSI of a stock lies between zero and 100. An RSI reading of more than 70 is considered ‘overbought’. A stock is considered ‘oversold’ or ‘undervalued’ when that value is below 30.
Royal Mail share analysis: Latest earnings
Royal Mail reported its latest earnings for the fiscal third quarter ended December 2021 on 25 January 2022. The company said performance in the third quarter was in line with expectations and that it had “delivered a solid performance over the Christmas period in particularly challenging circumstances operationally”.
The company handled a total of 439 million parcels during the quarter, with domestic parcel revenue growing by 43.9% compared to the pre-pandemic period of Q3 2019 to Q3 2020, while declining 4.9% from the same period last year.
Domestic parcel volumes also surged 33% as compared to Q3 2019 to Q3 2020 while decreasing by 7% year-over-year (YoY). The company’s most recent dividend payment was on 12 January 2022, when the firm paid a cash dividend of £0.067 per share to its shareholders as of the record date of 3 December 2021. The dividend was declared on 18 November 2021.
Royal Mail’s international courier business GLS reported a Q3 revenue growth of 37.7% in euros (35.2% in sterling) as compared to Q3 2019–2020, while attaining 10.7% growth in euros (4.5% in sterling) from Q3 2020 to 2021.
“We expected some decline in parcel volumes [in fiscal Q3], given most retail stores were open during the period, unlike last year. However, the trend towards customers wanting more parcels remains, and responding to that change efficiently is key. Our domestic parcels business in the UK has seen demand increase by around a third over two years, as has our GLS business across its markets,” Royal Mail chairman Keith Williams said.
GLS Group CEO Martin Seidenberg said GLS achieved revenue growth across nearly all markets, with continued strong performance in its Eastern European businesses. The company continued to manage its operations well despite headwinds such as the impact of the Covid-19 Omicron variant and upward pressure on costs driven by increasing inflation rates in countries where GLS operates.
Royal Mail’s operations early in the fiscal fourth quarter were affected by the absence of staff due to the spread of Omicron. CEO Simon Thompson said nearly 15,000 staff were sick or isolating in early January. This led the firm to spend more than £340m on “overtime, additional temporary staffing and sick pay, as well as providing targeted support for the offices most impacted”.
This higher absence also acted as a headwind when it came to delivering the firm’s productivity targets, Thompson said. The company has, for the time being, decided to streamline its operations and focus on domestic performance.
Royal Mail stock price drivers
According to Thompson, the company paid considerable attention to streamline its operations and enhance services in the UK. This is evident from the letters and parcel delivery company rolling out 59 electric vans in its Middlesbrough delivery office in late March and replacing its 120 diesel vans at the Doncaster delivery office with electric vehicles, as announced on 1 April to help lower its dependency on non-renewable sources of energy.
Overall, Royal Mail plans to roll out 3,000 electric vans across its delivery offices in 2022. The rollout includes cities where there is a low-emission zone in force.
Royal Mail also rolled out a new, fully automated parcel sorting machine at its Southampton delivery office. The parcel sorting machine can process up to 7,500 parcels in an hour (157,000 parcels a day), the company said in a news release on 14 April.
Royal Mail stock price 5-year forecast
At the time of writing on 21 April, 10 analysts’ ratings compiled by MarketBeat suggested a ‘hold’ for RMG. Six analysts rated the stock a ‘buy’, two a ‘hold’ and the remaining two rated it a ‘sell’. The research included analysts from Barclays, Credit Suisse Group and JPMorgan Chase & Co.
The analysts’ consensus 12-month Royal Mail share price target was 582.90p. The price targets varied from a low price target of 275p to a high of 1,000p.
Of the most recent recommendations, JPMorgan Chase & Co lowered its Royal Mail share-price prediction from 777p to 768p while Bank of America also boosted its price target from 260p to 310p.
In a longer-term Royal Mail stock forecast, algorithm-based Wallet Investor predicted RMG stock could reach a maximum price of 412p by December 2022, 519.6p by the end of 2023, 631p by 2024 and 739.4p by 2025.
While the market statistics service provider did not provide targets for 2030, it expected the stock price to reach 848.8p by December 2026 and 870.8p in April 2027.
If you’re considering investing in Royal Mail Group shares, it’s important to bear in mind that analysts’ forecasts may be wrong. Projections are based on making fundamental and technical studies of the stock. Past performance is no guarantee of future prices.
It is important to do your own research, taking into account Royal Mail share price news, your own attitude to risk, your expertise in the market, the spread of your investment portfolio and how comfortable you feel about losing money. Remember, you should never invest money you cannot afford to lose.