Shares round-up: Royal Mail and Trainline head opposite ways

The wind is in the sails of Royal Mail as its amazing recovery makes it favourite for a FTSE 100 slot.

Royal Mail (LSE:RMG) shares are closing on a return to the FTSE 100 index after another City firm weighed in with its support following Monday's “just buy it” advice from JP Morgan.

Shares jumped a further 7% to 586p — their highest level in three years and near to a record high — as more analysts priced in further benefits from the online parcels delivery boom, as well as robust letter volumes and cost savings.

JP Morgan triggered the buying frenzy on Monday by bolstering its target price to 801p and expressing surprise at the lacklustre market reaction to last week's annual results, when the delivery firm reported a doubling in adjusted operating profits to £702 million.

Broker Peel Hunt today added Royal Mail to its buy list and raised its price target from 560p to 680p, having just hiked forecasts for 2022 profits by 19%.

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Royal Mail shares are one of the most widely held on the London market, including among some of the 140,000 postal workers who were given free shares. Retail investors also received 227 shares from the heavily oversubscribed 2014 flotation at a price of 330p.

They were trading as low as 124p in April last year, but structural changes from the pandemic have triggered a succession of profit upgrades, aided by signs of improved employee relations.

Trainline still heading the wrong way

Structural changes of the wrong kind have sent Trainline (LSE:TRN) shares on a downward spiral after the government announced plans last week to simplify the system of ticket sales through a new state-run body, Great British Railways.

The prospect of a rival ticketing app means shares have fallen for five sessions in a row, with the 35% decline since Wednesday night leaving Trainline close to November's pandemic low of 256p. It had been more than 500p in early March as part of the wider re-opening trade.

Trainline sells tickets on behalf of all UK rail carriers as well as coach tickets for National Express and generated revenues of £178 million from UK consumers in the year to March 2020, a period only partly impacted by the Covid-19 pandemic.

Shares were today 19p lower at 278p, further boosting the short positions of several firms including George Soros' investment management business.

Other fallers in the FTSE 250 included Avon Rubber after the provider of protection systems for the military and first responders posted interim results showing a 28% rise in adjusted earnings per share and 30% hike in interim dividend to 14.3 US cents.

The shares were one of the best performing during 2020 until a delay in the approval process for some US ballistics protection contracts within the military business sent shares sliding from their all-time high of 4,650p in early December.

While chief executive Paul McDonald is still hopeful of commencing shipments from the delayed contracts at the start of the 2022 financial year, the absence of upgrades to full-year guidance contributed to shares falling 8% or 260p to 3,008p.

Avon Rubber (LSE:AVON) is also to change its name to Avon Protection after a year of transformation including November's acquisition of the Team Wendy helmets business.

The group was founded in 1885 as a rubber manufacturer and went on to produce everything from tyres and conveyor belts to milking machine tubes. It also produced 20 million gas masks in support of the WW2 effort before listing on the stock exchange in 1949.

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Another popular stock that fared better after posting results was Electrocomponents (LSE:ECM), with the FTSE 250-listed supplier of 650,000 industrial and electronic products up 11p to 1,052p after an initially lacklustre start to trading.

It reported an 18% drop in earnings per share to 31.3p following a challenging 2020/21, but strong momentum from the fourth quarter has carried into the new financial year with robust like-for-like revenues growth. The company also raised its full-year dividend by 3.2% to 15.9p.

Analysts at Jefferies have a price target of 1,230p and said full-year consensus profit forecasts were likely to move higher due to the strong first quarter trading guidance.