As Royal Mail shares continue to climb, does the FTSE 100 await?
The Royal Mail share price has seen a phenomenal year with its value increasing by 20% since April thanks to a boom in UK online shopping. As a result, Royal Mail could return to the FTSE 100 in the 1 June quarterly reshuffle.
- Royal Mail shares up more than 60% year to date
- Management recently reported £726m in pre-tax profit
- Shares closed at £5.78 on 28 May
- Ready to trade the Royal Mail share price? Open an account today
Why is this week a big one for Royal Mail shares?
Royal Mail, the formerly-public UK postal giant, has got a big week to look forward to. On 1 June, the stage will be set for the quarterly reshuffle of the hallowed halls of British industry - the FTSE 100. This index of the UK's leading blue-chip stocks consists of the top 100 companies in the UK based on market cap, and Royal Mail might finally be re-joining it.
If closing prices on 1 June are high enough, Royal Mail will re-enter the FTSE 100 for the first time since it left in 2018, following a string of losses. However, things have changed markedly for the company since then, despite notable gains from 2020. In the past year alone, the Royal Mail share price has more than quadrupled, from £1.24 in April 2020 to £5.78 on 28 May.
What is behind Royal Mail's successes?
Although the long-awaited re-entry of Royal Mail into the footsie is not guaranteed, the conditions surrounding it may boost market confidence. Royal Mail recently posted a pre-tax annual profit of £726 million, up from profits of just £180 million the previous year. The company is targeting an ambitious year-on-year revenue growth for the next five years, with very little capital expenditure.
So, what is behind this reversal in fortunes? For one thing, the British public is using the Royal Mail like never before. The pandemic-induced boom in online shopping has helped swell the coffers of Royal Mail, as the UK's largest provider of postal services by a wide margin.
Meanwhile, Royal Mail has been determined to innovate its way out of the crises of previous years, experimenting with UK drone deliveries and a Covid 19-safe Parcel Collect Service that allows users to pay parcel fees via an app, rather than at the post office. All of this has led to an unprecedented rally in the market confidence in Royal Mail, which may very well lead to the company's reinstatement into the top 100.
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