Parcel delivery stabilises at UK Mail

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UK MAIL [LONUKM] said that parcel delivery operations had been resilient across the first half and that was enough to send the shares 3pc higher yesterday as markets had been expecting tough competition to hit profits.

The delivery group said online retail had once again increased parcel delivery revenues by 3.4pc during the first half when compared to the same period last year.

The more important information was that UK Mail said it achieved £6.2m in operating profits during the first half, down from £6.3m last year and that came despite increasing competition from the likes of Royal Mail and TNT. With an increasing amount of consumers using click and collect, causing parcel volumes to fall, the market was fearing the profit performance would be worse.

Trading was in line with market expectations with group revenue down 1pc to £241.4m and pre-tax profits of £11.4m, down from £11.9m last year.

Guy Buswell, chief executive, said the company is still on target to hit full-year, pre-tax profits of £22.5m, giving earnings per share of 31.2p, increasing to 36.0p next year.

The company had previously warned that the rapid increase in parcel volumes would slow throughout this year. The UK parcel delivery market is profitable and fiercely contested with Amazon launching its own service this year and eBay also providing a collection service through Argos shops. This is significant because parcels contributed about 60pc of the group’s profits and about 40pc of the revenue in the annual results last year.

By contrast, traditional mail delivery is undoubtedly in structural decline which has affected UK Mail. The company reported revenue from mail delivery down 5.1pc to £109.7m and operating profits down 2.4pc to £6.2m.

Shares in UK Mail fell sharply from around 560p to 470p on September 25 when the company warned on the slowing growth in the parcel market. The forecast dividend on the shares is 22.7p, which offers a yield of 5.7pc. The shares are trading on 12.7 times forecast 2014 earnings and remain a hold.