A surge in first-half volumes at UK Mail's (UKM) parcels division has prompted the mail and logistics services company to say that first-half results will beat expectations. This triggers a 3.5% rise to 590p.


UK Mail says interim results, to be published on 20 November, should show a 7% rise year-on-year. Underlying revenue gain is 4% if you adjust for three extra working days in this year's period.


Parcels is the strong area. Average daily volumes increased by some 25% compared to the same period last year thanks to an increase in home deliveries related to online shopping.


Mail revenues were down slightly and the group put this down to mix changes as daily mail volumes continue to grow – albeit by only 2%. The courier and pallet businesses performed in line with expectations, with slight revenue declines on the same period in the previous year.


While the group remains cautious about the depth of the UK's economic recovery, UK Mail says its markets continue to provide opportunities to develop and grow business.


Stockbroker Investec raises its price target on UK Mail from 600p to 630p with analyst John Lawson characterising the company as being 'in a sweet spot...with strong demand and enough capacity for now.'


Investec nevertheless flag up concerns about the rise in parcel volumes coming from an increase in home deliveries related to online shopping where B2C (business to consumer) traffic 'has modest negative implications for the yield'. That notwithstanding, the broker is confident that the uplift from growth in volumes will more than mitigate for any likely margin erosion.

Issue Date: 25 Sep 2013