RE: Sp14 May 2018 18:18
Motley Fool : The performance of Royal Mail‘s (LSE: RMG) share price in the last six months has been exceptional. The company has recorded a rise of around 45%, which is significantly higher than the FTSE 100’s 4% gain over the same period.
However, after such a large rise, many investors will naturally wonder whether the company has further upside. After all, its valuation is now likely to be less appealing than it once was. With that in mind, is it worth buying alongside this Footsie peer which still seems to have significant recovery potential?
Positive changes
While Royal Mail’s CEO recently announced plans to leave, the company seems to have a sound strategy which could lead to further long-term growth. For example, it has been able to improve its efficiency, with cost avoidance measures set to provide a boost to its overall performance. It has also pivoted towards parcel delivery at a time when demand for letters is falling. This could provide it with a stronger growth rate in future, while its international operations may also provide an increasingly robust growth outlook.
Investment appeal
Of course, the company’s share price rise means that its dividend yield has been squeezed. Royal Mail now has an income return of around 4.2%, which is still above the FTSE 100’s yield of around 3.9%. And with dividends being covered 1.7 times by profit, they appear to be highly sustainable at their current level.
Clearly, the company is continuing to experience an uncertain period, with management changes and political risk being high. But with a reshaped business model and a strong income outlook, it could deliver further outperformance of the FTSE 100 over the long term. As such, now could be an opportune moment to buy it.
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