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Can Royal Mail keep delivering?

Down in the dumps 12 months ago, the momentum behind Royal Mail's share price recovery has been quite something
March 26, 2021

Momentum strategies show persistent outperformance. We run our Alpha momentum screen across three indices: FTSE All-Share, All Small and Aim. Here are three highlights. 

 

  • Royal Mail Group (RMG) has enjoyed a surprising turnaround since the depths of lockdown mk.1 last Spring. At first it struggled as mail volumes shrank and unions continued to agitate amongst its workforce – who are classed as frontline workers after all. But a rebound in postal volumes as coronavirus reshaped our way of life, potentially permanently, a compromise with the Communication Workers’ Union and the first fruits of its 2024 modernisation plan have combined to produce an upturn in fortunes. And the share price has responded in kind – more than tripling over the past year. It is perhaps little surprise investors have cottoned on to the chunky upgrades analysts have predicted for earnings in the coming year, although the following year looks set to be more prosaic, hence why Royal Mail failed one of our momentum tests.
  • Hats off to ingredients specialist Treatt (TET) which is the only stock to pass all eight tests for the momentum screen in both the All Share and Small Cap indices. This well-managed business, operating debt free, has had a good pandemic if ever there could be such a thing as demand for its products has remained robust and innovations have helped it continue to grow its presence in key low sugar and sugar free products. Analysts are booking in solid and consistent upgrades to EPS forecasts over the coming years which should help it maintain momentum. The only possible fly in the ointment, pointed out in Phil Oakley’s recent in depth analysis of the company, is a lengthening of debtor days which investors should keep an eye on. 
  • On Aim two very different companies passed all our tests with digital technology services business Panopoly (TPX) and old economy miner Sylvania Platinum (SLP) both scoring top marks. The former is benefiting from strong and consistent growth leading to upgrades in expectations while the rebound in metals markets has played into the hands of Sylvania. 
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