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The Royal Mail share price (RMG) has soared 30% in 2020. I’d buy

Alan Oscroft
·3-min read
Silver and golden colorful Christmas glitters showing the year 2021 on turquoise background.
Silver and golden colorful Christmas glitters showing the year 2021 on turquoise background.

When I examined Royal Mail Group (LSE: RMG) in September, I was firmly in ‘wait and see’ territory. At the time, the Royal Mail share price was up 7% year-to-date, boosted by the company’s growing parcels business. I said: “Interim results could push the Royal Mail share price up further. Or send it crashing back down again.” And I decided to wait at least until the end of the year.

Well, it’s not quite the end of the year, but we have had those interim results. The shares are up 20% since my noncommittal words, and they’ve now gained 30% so far in 2020. I’m swaying towards buying RMG shares, but hasn’t my hesitation cost me an opportunity?

I’d already be 20% up had I bought. But in tough times like the 2020 stock market crash, there are big risks to go with the opportunities. And getting in too quickly can be very costly. So when it comes to recoveries, I’m always going to wait until I see sufficient positive signs.

Royal Mail share price: don’t lose money

I know that means I’ll miss the bottom, and I’ll end up buying after the price has started to climb. But by holding back, I’m reducing my chances of losing money. And we all know Warren Buffett’s first rule of investing: “Rule No. 1: Never lose money.” Besides, I only ever invest for the long term, and I’m not interested in chasing short-term ups and downs.

So, what are the key points from these first-half figures? And what’s led me to shift the Royal Mail share price from ‘wait and see’ to ‘tempting buy’?

Big one-off profit crash

First, let’s look at the bad news. Pre-tax profit crashed 90% to just £17m. But there’s a whole pile of one-off costs in that. Covid-19 costs of £85m, a hit from redundancies of £147m… the company is going through a major restructuring, which was always going to hurt. There’s nothing surprising there.

On the upside, Royal Mail passed a significant milestone. Revenue from parcels exceeded letters revenue for the first time. Letters revenue continued its decline, dropping 21%, while parcels revenue climbed 33%. The two produced a combined 4.9% rise in revenue. And total group revenue rose by 9.8%. The Royal Mail share price is up 4% since the news, on top of its recent big gains.

Online shopping here to stay?

There was a big boost from the rise in online shopping during the pandemic. But I really don’t see that as a one-off. People I know who’ve tried it for the first time say things like, “Oh, that was easy, I’ll do that again“. I’m not seeing a brief switch to online shopping that will flip back next year. No, I think the inexorable long-term shift has just been kicked forward by the lockdown.

Talks continue with unions over crucial changes that are still needed. But Interim Executive Chair Keith Williams says he’s encouraged by the way they’re going. He also reckons the full-year picture is improving, though there’s still a good helping of uncertainty.

The Royal Mail share price could still be volatile, but I do think it’s turned the corner. It’s on my long-term buy list.

The post The Royal Mail share price (RMG) has soared 30% in 2020. I’d buy appeared first on The Motley Fool UK.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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