Shares in UK parcels delivery service Royal Mail (RMG) advance 3.4% to 496.7p despite letter revenues falling 6% in the quarter to 24 June and a warning trading could deteriorate further.
It appears investors are focusing on robust trading in UK parcels and the overseas division General Logistics Systems (GLS).
Royal Mail expects a 4% to 6% decline in addressed letter volumes, but believes this could hit the higher end of the range or even come in higher than this guidance.
The risk of further business uncertainty and advertisers potentially being deterred from sending marketing mail due to confusion over new data privacy rules are being blamed for the cautious outlook.
Overall sales are up 2% as a robust performance in UK parcels offset falling addressed letter sales.
Higher volumes from retailer account customers and the popularity of tracked delivery services boosted parcel volumes by 7%.
OVERSEAS GROWTH CONTINUES
In GLS, Royal Mail has achieved 11% sales growth across almost all its markets, flagging strong growth in Italy, Denmark and Spain in particular.
Following a historic pensions and pay breakthrough earlier this year, the delivery firm is making progress with its trials and initiatives to improve the efficiency of its services and compete with rivals.
Since the beginning of the year, shares in Royal Mail have rallied 16.8% as a breakthrough on a pensions agreement helped kick-start efficiency initiatives.
These include trialling different delivery methods and different tools and technology.
AJ Bell investment director Russ Mould says achieving productivity improvements should help free up workers to spend more time delivering packages.
‘New chief executive Rico Back may be under pressure from shareholders to find ways to accelerate the pace of change,’ comments Mould.
‘Fortunately he’s worked for the business for more than 18 years and can hit the ground running.’
