Why the Royal Mail (RMG) share price rose 49% in 2021

[TrueBlueTerrier]

https://www.fool.co.uk/2022/01/05/why-t ... 9-in-2021/

On 30 December 2020, the Royal Mail (LSE:RMG) share price closed at 340p. Using the closing price from 2021 of 506p, this means that the shares rallied an impressive 48.7% last year. This gain ranked it among the top 10 performers in the entire FTSE 100 index for the year. Digging deeper, it’s clear that there were a few key reasons for the move higher in the shares.

A positive spillover from 2020
The first reason for the gain in the Royal Mail share price came from positive results for the year ending March 2021. This encompassed the impact of the pandemic with various lockdowns in this timeframe. Royal Mail was one of the few companies that actually performed well during 2020.

Its success was driven by much higher demand for parcels. The fact that almost all of us were at home meant we needed to order more online. Added to this was the part that the company played in helping to deliver PPE kit and test kits. Even though traditional letters demand fell during this period, the spike in parcel volumes saw profits rocket higher.

In the full-year report, adjusted operating profit came in at £702m, up from £325m the year before. Although the Royal Mail share price was already moving higher in H2 2020 as investors understood what was going on, the annual report wasn’t released until May 2021. Therefore, some of the boost to the shares was cemented when the full information came out.

Optimistic outlook helped the price
The share price did move lower during the middle of 2021. Investors were concerned that the spike in parcels growth was just a temporary blip. In the summer, a trading update showed that for calendar Q2, parcel volumes were down 13% versus the same period in the previous year.

However, the gains built up over H1 weren’t completely lost by any means. The company said that it was “starting to see evidence that the domestic parcel market is re-basing to a higher level than pre-pandemic, as consumers continue to shop online“.

This was backed up in late 2021 by the H1 results. Royal Mail domestic parcel volumes were up 33% versus the same period two years ago. This fact highlights that the company is able to sustainably grow long-term volumes and demand, even if at a lower level than the bumper 2020 figures. This positive outlook is another reason why the Royal Mail share price rallied towards the end of the year.

A note of caution
Although the Royal Mail share price did well last year, it wasn’t all plain sailing. The company continued to feel the pressure from competition, something that will remain an issue for 2022. It also operated on very thin operating profit margins in the 3%-6% region. This is a risk for investors going forward. It means that if costs increase and revenue stays the same, then an operating profit can quickly flip to a loss.

[paulus103]

Be interesting to see what the city makes of Christmas 2021
Was very quiet for our mc till halfway through Dec.
Jan so far has been busy

I understand airmail is still down which is understandable.

I can see costs coming down sharply with NW Hub now active (not good for our mc)

[Norfolk 'N' Chance]

It also operated on very thin operating profit margins in the 3%-6% region. This is a risk for investors going forward. It means that if costs increase and revenue stays the same, then an operating profit can quickly flip to a loss.

No money for a payrise then?

[Jpro747]

Because they lied about revisions being a great success?

[NWpostie]

The dividends is the ones you need to consider because it's a long term strategy not the share prices, shares and business profit are two different things.

[paulus103]

It also operated on very thin operating profit margins in the 3%-6% region. This is a risk for investors going forward. It means that if costs increase and revenue stays the same, then an operating profit can quickly flip to a loss.

No money for a payrise then?

I'm assuming Royal Mail's plan is that automation via the upcoming parcel hubs e.g NW Hub will boost their margins.
The assurances I read about the NW Hub suggested that parcels wouldn't be taken from existing mail centres IF parcel forecasts are correct.

From that, I take that parcels will be taken from MCs if demand drops or costs increase therefore saving money that way.

[Dorset Plodder]

"Mails Dropping" has been the sarcastic mantra of our Office for years. The Manager's excuse to try and make everyone walk harder. Yet Parcels are up 33% FFS.

Love it when Managers try and convince you that parcels take no longer to deliver than letters.

But Hey Share Prices are UP! ...... All Hail The Share Prices .... Perhaps they should offer us share options instead of a crap pay deal?

[dohnut]

Share price is down 13%, for the month, good time to buy?.

[cobrakai]

It also operated on very thin operating profit margins in the 3%-6% region. This is a risk for investors going forward. It means that if costs increase and revenue stays the same, then an operating profit can quickly flip to a loss.

No money for a payrise then?

I'm assuming Royal Mail's plan is that automation via the upcoming parcel hubs e.g NW Hub will boost their margins.
The assurances I read about the NW Hub suggested that parcels wouldn't be taken from existing mail centres IF parcel forecasts are correct.

From that, I take that parcels will be taken from MCs if demand drops or costs increase therefore saving money that way.

They are taking all outward at the hubs

[paulus103]

It also operated on very thin operating profit margins in the 3%-6% region. This is a risk for investors going forward. It means that if costs increase and revenue stays the same, then an operating profit can quickly flip to a loss.

No money for a payrise then?

I'm assuming Royal Mail's plan is that automation via the upcoming parcel hubs e.g NW Hub will boost their margins.
The assurances I read about the NW Hub suggested that parcels wouldn't be taken from existing mail centres IF parcel forecasts are correct.

From that, I take that parcels will be taken from MCs if demand drops or costs increase therefore saving money that way.

They are taking all outward at the hubs

yeah - we are being offered chance to transfer to NW HUB

[clashcityrocker]

Kretinsky has increased his share holding - it now stands at about 20% I think.
Does he think it is a good investment or is he thinking of launching a takepver?

https://www.lse.co.uk/rns/RMG/holdings- ... kf63l.html