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Royal Mail Group PLC () sent analysts scurrying to upgrade their forecasts after the postal service reported that 2020 was the best Christmas yet for its parcels division.
Many had already anticipated the strong numbers, but those waiting to see the figures have now caught up.
Barclays said it has significantly upgraded its forecasts across the group, though the broad numbers are a 26% rise in underlying profits {EBIT} in this year to March, followed by a 20% rise in 2021/22.
Barclays has an overweight rating and share price target of 451p.
Liberum added that the surge in online retail deliveries driven by the pandemic has more than offset headwinds from parcel handling costs and operational challenges.
“Management expects group operating profit for March 2021 to be well in excess of £500m, putting it above the top end of the consensus range (mean: £403m, high: £503m).”
The period of strength is set to continue, with no immediate end in sight for lockdown restrictions, said the broker.
“We see upside risk to consensus for this year and next, with lockdown restrictions and the boost to parcels volumes potentially continuing into the next FY.”
Even so, Liberum says the company has longer-term challenges hence a hold stance even though the price target rises to 480p from 320p.
“Royal Mail now has financial breathing room to implement restructuring plans, which now have the backing of the CWU union.
“However, it must do so while managing the impact of the unprecedented volume strength on operational quality.
“The execution risk in the restructuring plans should not be underestimated.”
Royal Mail shares were trading at 448.2p today.
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