MARKET REPORT: Royal Mail shares rise after a first class verdict from analysts as more parcels are sent during lockdown
Shifting ordinary life online as much as possible over the past few weeks has come at a great cost to many.
But Royal Mail, which has been struggling to varying degrees since it was privatised in 2013, is poised to benefit from the new reliance on web sales.
Analysts at investment bank Citigroup bestowed a rare double upgrade on the 504-year-old postal service, moving it from ‘sell’ to ‘buy’.
They also think that its stock is worth 210p, up from 150p at their last assessment.
Double upgrade: Royal Mail, which has been struggling to varying degrees since it was privatised in 2013, is poised to benefit from the new reliance on web sales
There are two reasons. First, the sheer volume of parcels being sent since lockdown.
They believe there is ‘ample evidence’ that ecommerce sales are rising and that this will have accelerated trade for Royal Mail, which has more than a 50 per cent share of parcel delivery in the UK.
Citi brokers estimate that for the financial year that began on April 1, the rise could push profits 400 per cent higher than consensus forecasts.
The company’s second boon is the fall in the share price, which has taken a 30 per cent hit so far this year.
Pre-coronavirus rumblings of strike action and getting caught up in the market turmoil from February onwards has shaved a decent amount off Royal Mail’s shares to scoop some up now, Citi said.
Stock Watch – Keystone Law
Challenger law firm Keystone Law lost ground despite profits rising 10 per cent to £5million.
In the year to January 31, the AIM-listed group also notched up a 16 per cent increase in revenues to just shy of £50million.
But it flagged up that there has been a ‘meaningful decline’ in the number of clients engaging its solicitors since the pandemic broke out.
The group, whose shares fell 6.2 per cent, or 27.5p, to 420p, thinks the fact that it works in several different areas of law will help it rebound.
Traders greeted the news by sending shares 5.4 per cent higher, up 8.15p, to 158.85p – even if Royal Mail did also say it would ditch Saturday letter deliveries until further notice.
Brokers also looked favourably on Hostelworld, which Peel Hunt analysts upgraded to ‘hold’ from ‘reduce’. Its shares rose 8 per cent, or 5.5p, to 74.5p after Peel Hunt said that it was ‘well placed’ to manage the crisis.
The analysts did however point out that its rivals would have more to spend on marketing.
On Monday, the travel group had said it expected ‘minimal bookings’ until at least July.
Growing plans to ease lockdown measures kept the FTSE 100 in positive territory, and eyeing the 6000-mark. It rose 1.91 per cent, or 111.71 points, to 5958.50 points, while the FTSE 250 climbed 2.12 per cent, or 338.86 points, to 16,291.58.
While many in the City will be hoping markets are now stabilising, online trading platform Plus500 is still cashing in on the recent volatility.
It is bringing in record revenues and seeing a surge in trading activity from new and existing customers during the second quarter. Its stock climbed 2 per cent, or 25p, to 1264p.
Although it’s only April, Plus 500 said it was enough to put annual profits and turnover ‘substantially ahead’ of current forecasts. Elsewhere, Warhammer owner Games Workshop has secured a £25million overdraft and will restart online orders on May 1.
The trading hit during the pandemic means full-year profits will fall to about £70million, from £81million in 2019 – but its stock jumped 9.1 per cent, or 485p, to 5805p.
And property site Rightmove also edged higher – up 4.1 per cent, or 19.4p, at 490.2p – after announcing it is eligible to access the Government’s Covid corporate financing facility loan system.
In non-coronavirus-related news, Watchstone Group, the company formerly known as Quindell, revealed it will not face criminal prosecution in an investigation being conducted by the Serious Fraud Office.
Shares in the group rose 8 per cent, or 11.5p, to 155.5p.
The probe into its previous business and accounting practices was launched in August 2015.
Individuals could still face prosecution – and there could still be a civil suit – even though the company will not.