More Royal Mail upgrades and a FTSE 250 promotion hopeful

Once, Royal Mail could do no right. Now it’s a stock market star. These mid-caps are flying too.

Promotion to the FTSE 250 index is within the grasp of Auction Technology Group (LSE:ATG) after maiden results and strong current trading sent bidding on its share price up by another 10%.

The next quarterly reshuffle of the FTSE UK Index Series is based on prices at next Tuesday's close of trading, with ATG one of three market newcomers set for second-tier status. The others are Trustpilot (LSE:TRST) and Moonpig (LSE:MOON) based on their strong post-IPO performances.

Windows specialist Tyman (LSE:TYMN) and ventilation products firm Volution (LSE:FAN) are also in the frame to join them, while Royal Mail (LSE:RMG) looks likely to be the single addition to the FTSE 100 index after a spectacular few days for its shares.

Royal Mail was trading today at 595.6p, compared with 526.4p at the start of the week, after a string of post-results upgrades that have included JP Morgan's top-of-the-range 801p.

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The latest vote of confidence came from Deutsche Bank's Andy Chu, who raised his target price from 708p to 763p and singled out new chief executive Simon Thompson for praise.

Chu said inviting CWU deputy general secretary Terry Pullinger to speak at the recent annual results presentation was a “total surprise” and highlighted how Thompson is transforming the culture at the delivery firm after years of poor industrial relations.

He said: “We also like the fact that Simon is going to spend one day a week in the operations and is building strong labour relationships which is important for productivity and morale. He is also trialling new projects and is being agile which we think is key to transforming Royal Mail.”

While it is hard to quantify the impact of these actions for the bottom line, Chu thinks a higher level of employee engagement, productivity and innovation can only be good for the company.

Shareholders are already reaping the benefit after the company promised a 20p a share dividend equivalent to a 3.6% yield for 2021/22, but Chu also expects excess cash to be returned over time.

Royal Mail shares were as low as 124p in April last year, but strong parcels demand fuelled by the online shopping boom in the pandemic has triggered a succession of profit upgrades.

Its return to the FTSE 100 later in June is set to be at the expense of precision engineering firm Renishaw (LSE:RSW), which only entered the top flight for the first time in the previous reshuffle.

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The likely elevation of Auction Technology Group comes after a stunning start to stock market trading since its IPO in February at a price of 600p a share.

The online auction specialist, whose Saleroom platform is often seen on BBC's Bargain Hunt, is now worth more than £1 billion after rising to 1,064p on the back of half-year results showing a 48% jump in revenues to £34.5 million and underlying earnings 158% higher at £17 million.

It has benefited from the pandemic accelerating the auction industry's structural shift online, including towards the use of timed auctions. That momentum has continued with better-than-expected trading in the second half, although chief executive John-Paul Savant warned it is still too early to predict the impact of lockdown restrictions easing. 

Interesting auction items in recent months have included Apple CEO and co-founder Steve Jobs' 1973 job application, which was sold for £162,000 to a bidder on the Saleroom platform by Charterfields Auctioneers. A first edition Harry Potter and the Philosopher's Stone also went for a bigger-than-expected £17,500 in December.

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The company's total hammer value benchmark rose 31% in the half year and there were also 64 million bidder sessions, an improvement of 35% on a year earlier. Auction Technology's other platforms include Proxibid for the North American industrial and commercial marketplace and BidSpotter, which operates on both sides of the Atlantic.

The company reported £14.5 million of free cash flow in the half year but exceptional items and share based compensation relating to the IPO meant a bottom-line loss of £22.6 million.

Broker Numis Securities today upped its price target from 1,012p to 1,090p and said the risks were to the upside as the financial year progresses.