Royal Mail PLC still perceived as cheap despite rocketing 241% since first 2020 lockdown

It’s hard to think of centuries-old Royal Mail PLC (LSE:RMG) as a go-go-glamour stock but it was near the top of the Footsie’s charts again today.

The shares were up 3.2% at 496.1p after yesterday’s surprise announcement of a £200mln special dividend and a £200mln share buyback that should keep both income investors and capital gains accumulators happy.

The results for the half-year to September were marginally ahead of the consensus forecast and management’s guidance of group operating profit of between £395mln and £400mln, with the UK contributing at least £230m.

Guidance for the current fiscal year (to March 2022) of around £500mln operating profit in the UK, low single-digit revenue growth and an operating margin of around 8% at GLS, its logistics arm, appears not to have prompted much change in consensus forecasts.

Since the beginning of the year, Royal Mail shares have shot up from 338p and are up 241% since 23 March of last year, when the first UK lockdown was introduced.

The lockdown restrictions accelerated a trend that was already in progress, namely the switch to online retailing, which has been a windfall for Royal Mail and its parcels delivery service.

The consensus broker rating is for the shares to continue to outperform the market, with a median target price among analysts who follow the stock of 651p.

On a price/earnings ratio of just 7.9 based on the current year earnings forecast, the shares do not look overly pricey on traditional valuation grounds while a forecast dividend yield looks like a decent hedge against inflation.