Today I am looking at why Royal Mail Group’s (LSE: RMG) surging operations overseas looks set to become an increasingly critical earnings driver in coming years.
Overseas operations continue to fizz
Royal Mail’s core operations at home of course tend to dominate investor attention, and are responsible for four-fifths of group revenues. But the firm’s Global Logistics Systems (GLS) — one of the biggest ground-based parcel delivery services in Europe — continues to make punchy inroads in juicy foreign territories and looks set to become a major earnings driver.
Revenues at GLS rose 6% in March-September, to £801m, a result which thrust operating profit 11% higher to £53m. Furthermore, the division also continues to grow margins, and these popped 30 basis points higher to 6.6% during the period.
The business reported growth in all regions in March-September, and parcel volumes grew 6% during the six months to 193 million items. GLS operates in 37 countries across Europe, and with 70% of revenues generated in Germany, France and Italy, the company enjoys excellent exposure to the continent’s economic powerhouses.
Looking ahead, GLS says that it is focusing on “increasing the scale of its operations in Europe on a targeted basis, including monitoring emerging markets for new opportunities.” The company has also identified ways to grow turnover by leveraging structural trends in internet retailing and by optimising its traffic mix. Like at its home markets, I believe that the surging trend of online retailing is set to deliver strong growth in coming years.
Back at home, Royal Mail’s received a boost on Wednesday when the Communication Workers Union announced that it had hammered out a “proposed agreement [covering] pay, legal protections for terms and conditions, industrial stability and pensions” with the business. Although the union retains the right to strike until the deal is formally sealed, it rules out the possibility of industrial action in the frantic run-up to Christmas.
City analysts expect Royal Mail to punch 6% earnings per share growth in the year ending March 2014, to 35.4p, before striding 30% higher the following year to 45.9p. In my opinion the carrier’s surging activity both at home and abroad makes it a fantastic pick for long-term growth.