Parcels play Royal Mail (LSE: RMG) greeted the market with a robust trading update on Tuesday.
The company saw group revenues edging 1% higher during April-June, thanks to the resilience of its parcels market where both sales and volumes rose 2%. The structural decline in the letters market was reflected by a 2% fall in volumes and 3% revenues dip, however.
There ‘s no doubt that Royal Mail still has plenty of paddling to do to stay afloat though. Indeed, the firm noted that “we continue to face the challenges caused by the current low inflationary environment and our highly competitive markets.”
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But I believe Royal Mail’s dominance of the UK market, allied with the fruits of heavy restructuring, should help it to overcome the worst of these problems.
And the roaring success of Royal Mail’s foreign operations gives further reason for cheer. The courier saw volumes and revenues at its European GLS division leap 13% during the last quarter, with sales growing across all regions.
I reckon a forward P/E ratio of 12.1 times, allied with a 4.5% dividend yield, makes Royal Mail a brilliant value pick.
Gold star
Gold digger Polymetal (LSE: POLY) has also remained stable on Tuesday despite releasing a mixed update. Shares in the business remain camped around three-and-a-half-year peaks of £11.25.
Polymetal advised that planned grade declines at Okhotsk and Omolon — allied with “traditionally volatile” grades at Dukat — forced total production 12% lower during April-June, to 262,000 ounces. Output for the first half was down 8% from the same period in 2015, at 522,000 ounces.
Still, operational improvements and de-stocking are expected to drive output higher during the second half, and full-year guidance is maintained at 1.26m ounces.
While gold prices may have retreated from recent multi-year highs of $1,350 per ounce, I reckon there’s enough macroeconomic and geopolitical turmoil to drive metal values skywards again. I reckon Polymetal is an attractive stock candidate at present, a point underlined by a terrific P/E rating of 14.2 times for 2016.
In a hole
I’m much less cheery over the investment prospects of diversified digger Rio Tinto (LSE: RIO), however. Unlike the gold market, Rio Tinto’s core segments remain haunted by fears of hulking supply/demand imbalances.
And this is likely to persist as China’s economy steadily cools — iron ore imports slumped 5.9% month-on-month in June, for example, reflecting poor domestic demand and cooling global demand.
Rio Tinto and its mining peers are trying to mitigate the prospect of prolonged commodity price weakness by hiking production. Indeed, data last night showed production from the firm’s Pilbara iron ore operations rising 8% between April and June on an annualised basis, to 80.9m tonnes.
Copper and aluminium output advanced 5% and 11% respectively, too. And expansion work like that at Rio Tinto’s Oyu Tolgoi copper project in Mongolia should keep flooding the market with material.
Against this backdrop it’s difficult to see how Rio Tinto can transform its poor earnings outlook — indeed, the City expects the bottom line to keep falling until at least 2017. So I reckon Rio Tinto is a highly-unattractive pick at present, particularly given its slight-heady forward P/E rating of 18.1 times.
