Postal services group Royal Mail (RMG) ticked 0.6% higher to 485.4p as it stuck to full year guidance for low single-digit revenue growth and an 8% operating margin.

The company said it expected stronger performance in the second half of the year compared to the first, even as parcel volumes normalise following a boost from the pandemic, and costs rise.

‘The first five months saw continued revenue growth across the group, with both Royal Mail and GLS reporting higher revenues than the prior year,’ the company said. ‘Domestic parcel volumes are up around a third compared to pre-Covid.’

‘Whilst we continue to expect further normalisation of parcel performance as we unwind from the pandemic and anticipate some upward pressure on costs, both adjusted operating profit and margin are expected to be higher in H2 compared to H1.’

‘UNUSUALLY BULLISH’

First half results for the six months to 30 September 2021 are set to be announced on 18 November. AJ Bell investment director Russ Mould commented: ‘Royal Mail seems unusually bullish, maintaining earnings guidance despite clear headwinds from cost pressures. That’s a dangerous stance to take as the stock market likes companies that under-promise and over-deliver, not the other way round.

‘The surge in parcel volumes has given Royal Mail a reason to be more optimistic but it isn’t necessarily the final solution to its years of disappointing investors.

‘Longer term Royal Mail still needs to work hard at improving operations and making them efficient. Parcel delivery remains an incredibly competitive space and letter volumes are likely to keep falling. To boost profit margins, Royal Mail must become a leaner, meaner business with even greater automation.’

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Issue Date: 23 Sep 2021