View the article online at http://citywire.co.uk/wealth-manager/article/a723535
Royal Mail: divi or growth stock for 2014?
by Danielle Levy on Dec 09, 2013 at 14:43
Royal Mail is one of the biggest share success stories of the year, having posted a 25% price rise since listing at 330p in mid-October.
With its maiden results providing further support for the bull case, could the postal service represent the next big dividend play in your clients’ portfolios?
Much depends on whether you believe the transformation programme that is currently being undertaken will prove successful.
The company’s first set of half-year results since the government floated its 60% stake suggest things are moving in the right direction. Revenue rose by 2% to £4.5 billion over the six months to the end of September, while operating profit rose to £283 million, up from £144 million in 2012.
Margins improved like-for-like to 5.2% from 3.3%, earnings before interest, taxes, depreciation and amortisation was up by £79 million to £483 million, while the business reaped the benefits of lower than expected transformation costs. Profits were boosted by a one-time, non-cash benefit of £1.35 billion as a result of pensions reform.
‘It is easy to make a bull case as the government is very bad at owning things and running businesses and every other privatisation has radically improved once the government is out of the picture,’ Mark Slater of Slater Investments commented.
He applied for shares at issue but did not receive any and has not been tempted into the stock since it floated. Nonetheless, he says it is one he will monitor
as he expects the management team could have further success in turning the business around.
‘Other quoted businesses of a similar nature in Europe have better margins so you can make the bull case,’ he added.
£133 million divi payout
One of the most interesting parts of Royal Mail’s results was its intention to pay a final dividend of £133 million next July.
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