Like-for-like revenues at the group rose 2% in the nine months ended 29 December 2013 with parcels accounting for 51% of turnover in the period.
Unpacking the headline figures, UK Parcels, International and Letters (UKPIL), which comprises the company's UK and international parcels and letters delivery businesses operating under the 'Royal Mail' and 'Parcelforce Worldwide' brands, saw a 1% increase in like-for-like sales.
The parcels segment was the best performer, notching up an 8% hike in turnover compared to the 3% decline in UK letters revenue. Volumes remained flat on the parcels side despite accounting for 41% of UKPIL revenue compared to 38% in the same nine months last year. In December alone the group delivered 115 million parcels.
The decline in letter volumes in the period is less than the previous comparable period when a 4% fall in volumes was recorded, reflecting the ongoing structural decline of this service in favour of digital communication.
The slowing in the rate of volume decline is attributable to increased business in addressed letters as a result of high levels of mailings from energy companies at the beginning of the second half. There was also a like-for-like increase in stamped mail volumes in December which included the impact of Christmas cards.
The group's General Logistics Systems (GLS) business grew both revenues and volumes (6% and 5% respectively) in the period, reporting good progress in Italy and the emerging European markets and noting that the turnaround in France continues. The only note of caution from this division came in the observation that sub-contractor rates in Germany continue to see upward pressure.
One of the major concerns for Royal Mail investors since the group's October admission has been the often fractious nature of industrial relations at the group. Management is to be lauded for its handling of this contentious issue.
On 9 December 2013 Royal Mail announced that it had reached agreement in principle with the Communications Workers' Union (CWU) on an agenda for growth, industrial stability and protections, including a three-year pay offer as well as confirming the pensions reform. The ballot to recommend the pay agreement and confirming the Pensions Reform commenced on 22 January and runs until 5 February.
For those investors who got in on the ground floor with Royal Mail when shares floated at 330p, today's update is likely to be reassuring, hence why we haven't seen lots of selling. One of the key attractions at the IPO was prospect of an attractive dividend policy. In November Royal Mail told investors that in the absence of unforeseen circumstances, the board intended to propose a final dividend pot of £133 million for the full year.
While today's interim statement fell slightly short of expectations for analyst Alex Paterson at Espirito Santo, he concedes that 'the differences from what we were expecting were small and we see the trends as encouraging. We remain a 'buyer' with a 635p fair value. At 588p, RMG trades on 12.7x p/e and dividend yield of 3.3% for FY15E,' he says.
On the other hand, Panmure's Gert Zonneveld says that 'following a strong share price performance, we have downgraded our recommendation from 'buy' to 'hold'. He adds: 'While we continue to see longer term upside potential in the share price, especially if we assume that the dividend pay-out ratio is likely to increase going forward, in the near term we expect the shares to tread water. We maintain our target price of 570p.'